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

question 144

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.Current Situation: Total Assets = Total Liabilities + Stockholders' Equity

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Definitions:

Crisis Management

The identification of threats to an organization and its stakeholders, along with methods for dealing with those threats efficiently.

Organizational Crisis

A significant threat to an organization that requires immediate action to preserve its reputation, financial stability, or existence.

Cause And Effect

The relationship between events or things, where one is the result of the other or others, often used as a method to identify reasons behind specific outcomes.

Process Audits

Evaluations that focus on the efficiency and effectiveness of processes within an organization, aiming to identify areas for improvement.