What Will Be the Effect on Gamma's Debt Ratio If

question 165

Multiple Choice

What will be the effect on Gamma's debt ratio if Gamma's owner invests an additional $5 million to finance its expansion?

• A) The debt ratio will decrease from .1 (3/30) to .0857 (3/35) after the additional investment.
• B) The debt ratio will decrease from 3/27 before to 3/32 after the additional investment.
• C) The debt ratio will increase from 30 before to 35 after the additional investment.
• D) Additional investment by owner will have no effect on the debt ratio.

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Definitions:

Tender of Payment

An offer of money or its equivalent to satisfy a debt, made by a debtor to a creditor.

Face Amount

The sum of money stated on the face of a financial document, such as an insurance policy, bond, or certificate, that is payable at maturity.

Interest Accrued

Interest that has been earned but not yet paid.

Without Recourse

A term indicating that the holder of a financial instrument cannot demand payment from the original issuer or underwriter in the event of non-payment by the borrower.