Seedly Corporation's Most Recent Balance Sheet Reports Total Assets of $35,000,000

question 76

Multiple Choice

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

• A)Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
• B)Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
• C)Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
• D)Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
• E)Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

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Definitions:

Tender Offer

A public offer to buy shares from shareholders, usually at a premium over market price, as a way to gain control of the company.

Digital Accessories

Electronic ancillary equipment that supports and enhances the use of primary digital devices such as computers, smartphones, and tablets.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount, in exchange for immediate money.

Venture Capitalism

A form of private equity financing that investors provide to startup companies and small businesses believed to have long-term growth potential.