Saffron Industries Most Recent Balance Sheet Reports Total Assets of $42,000,000,total

question 183

Multiple Choice

Saffron Industries most recent balance sheet reports total assets of $42,000,000,total liabilities of $16,000,000 and stockholders' equity of $26,000,000.Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds.What effect,if any,would prepaying the bonds have on the company's debt-to-equity ratio?

• A)Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
• B)Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
• C)Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
• D)Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
• E)Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.

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