A New Firm Is Developing Its Business Plan

question 53

Multiple Choice

A new firm is developing its business plan.It will require $710,000 of assets (which equals total invested capital) ,and it projects $450,000 of sales and $355,000 of operating costs for the first year.Management is reasonably sure of these numbers because of contracts with its customers and suppliers.It can borrow at a rate of 7.5%,but the bank requires it to have a TIE of at least 4.0,and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt.The firm will use only debt and common equity for financing.What is the maximum debt to capital ratio (measured as debt/total invested capital) the firm can use? (Hint: Find the maximum dollars of interest,then the debt that produces that interest,and then the related debt to capital ratio. ) Do not round your intermediate calculations.

• A) 54.86%
• B) 46.83%
• C) 44.60%
• D) 43.26%
• E) 38.80%

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Definitions:

Egocentrism

A cognitive characteristic in developmental psychology where an individual is unable to differentiate between their own perspective and someone else's perspective.

Egocentrism

A cognitive characteristic where an individual is unable to understand the perspective of others, believing that others see, hear, and feel exactly the same as they do.

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A period in human development that spans from birth to the end of the preschool years, focusing on rapid physical, cognitive, and emotional growth.

Rough-And-Tumble Play

A form of play involving physical activities such as running, chasing, and pretend fighting, often observed among children.