Question

On December 31, 2017, FFS Inc. has total liabilities of $840,500 and total equity of $1,446,000....

On December 31, 2017, FFS Inc. has total liabilities of $840,500 and total equity of $1,446,000. The company needs to raise additional funds through debt and equity. The company will issue 5,000 shares of common stock at $15 per share and in addition it intends to borrow as much as it can from Bank of Stackwood. Bank of Stackwood requires a maximum debt-to-asset ratio of 0.4.

What is the maximum additional amount that FFS Inc. can borrow after the additional stock is issued?

Select one:

a. $173,500

b. $104,100

c. $123,500

d. $0 (the company already exceeds the 0.4 debt-to-asset ratio)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

Total Equity before additional borrowings = $1,446,000 + (5000*$15) = $1,446,000 + $75,000 = $1,521,000

Total Liabilities or Debt before additional borrowings = $840,500

Total Assets before additional borrowing = Total Equity before additional borrowings - Total Liabilities or Debt before additional borrowings = $1,521,000 - $840,500 = $680,500

Now, Debt to asset ratio before additional borrowing = Total Debt / Total Assets = $840,500 / $680,500 = 1.24

Since debt to asset ratio already exceeds maximum debt to asset ratio, therefore if the company borrows more amount then debt to asset ratio will increase.

Hence company cannot borrow any amount as it debt to asset ratio already exceeds maximum 0.4 as required by bank.

Hence option "d" is correct, i.e. "$0 (the company already exceeds the 0.4 debt-to-asset ratio)".

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On December 31, 2015, Sveva Inc. has total liabilities of $252,000 and total equity of $420,000....
On December 31, 2015, Sveva Inc. has total liabilities of $252,000 and total equity of $420,000. The company needs to raise additional funds through debt and equity. The company will issue 40,000 shares of common stock at $4.50 per share and in addition it intends to borrow as much as it can from Bank of Switzerville. Bank of Switzerville requires a maximum debt-to-asset ratio of 0.75. What is the maximum additional amount that Sveva can borrow after the additional stock...
Hens Inc. has a total debt ratio of 60%, which is slightly above the industry average...
Hens Inc. has a total debt ratio of 60%, which is slightly above the industry average total debt ratio of 55% . Hens Inc. decides to follow only pecking order theory when deciding how to raise capital to pay for new projects, so they should Multiple Choice use equity to get closer to the optimal capital structure then issue additional debt if necessary. use internal financing prior to external financing. use short-term debt to its maximum available limit prior to...
You currently own 800 shares of JKL, Inc. JKL is an all equity that has 700,000...
You currently own 800 shares of JKL, Inc. JKL is an all equity that has 700,000 shares of stock outstanding at a market price of $40 a share. The company's earnings before interest and taxes are $5,600,000. You believe that the JKL should finance 50 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 4 percent interest on their debt, answer the following questions. Part A: How much money should you borrow...
The balance sheets of ABD Inc. and C Corporation on December 31, 2017 are given below:...
The balance sheets of ABD Inc. and C Corporation on December 31, 2017 are given below: ABD Inc. C Corp. Assets Cash $800 $-0- Account receivable -0- 900 Inventory 700 -0- Current assets 1,500 900 Plant & equipment, net -0- 1,200 Total $1,500 $2,100 Liabilities and shareholders’ equity Account payable $600 $-0- Long-term debt -0- 1,500 Total liabilities $600 $1,500 Common stock ($1 par) 500 500 Additional paid-in capital 100 -0- Retained earnings 300 100 Total $1,500 $2,100 (Required) 1.1...
Composite Solutions Company (CSC) has the following account balances:   Current assets $ 24,000     Current liabilities $...
Composite Solutions Company (CSC) has the following account balances:   Current assets $ 24,000     Current liabilities $ 10,000   Noncurrent assets 88,000     Noncurrent liabilities 48,000   Stockholders’ equity 54,000 The company wishes to raise $50,000 in cash and is considering two financing options: CSC can sell $50,000 of bonds payable, or it can issue additional common stock for $50,000. To help in the decision process, CSC’s management wants to determine the effects of each alternative on its current ratio and debt to assets...
Last year, Concord Inc. reported total assets of $500, equity of $300, net income of $100,...
Last year, Concord Inc. reported total assets of $500, equity of $300, net income of $100, dividends of $40, and retained earnings in the period of $60. What is Concord Inc.'s growth rate if it maintains a fixed leverage ratio (can issue external debt) but issues no equity?
On December 31, 2017, the stockholders' equity section of Arndt, Inc., was as follows: Common stock,...
On December 31, 2017, the stockholders' equity section of Arndt, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares $ 90,000 Additional paid-in capital 116,000 Retained earnings 194,000 Total stockholders' equity $400,000 On March 31, 2018, Arndt declared a 15% stock dividend, and accordingly 1,350 additional shares were issued, when the fair value of the stock was $20 per share. For the three months ended March 31, 2018, Arndt recorded a net...
11. Adventure Inc.'s total stockholders’ equity balance was $40,000 on 12.31.20. During 2020 the firm had...
11. Adventure Inc.'s total stockholders’ equity balance was $40,000 on 12.31.20. During 2020 the firm had a net loss of $8,000, paid $6,000 in dividends, and sold an additional $7,000 of common stock. The 1.1.20 balance of total stockholders’ equity was:______________ 12. Cash received from selling building and land no longer used by a manufacturing company is reported within what section of a statement of cash flows: a. Operating Activities b. Investing Activities c. Financing Activities 13. If a firm's...
RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $650,000, a net income of...
RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $650,000, a net income of $78,000, and the following balance sheet: Cash $130,390    Accounts payable $110,500 Receivables 218,790    Notes payable to bank 88,400 Inventories 430,950    Total current liabilities $198,900 Total current assets $780,130    Long-term debt 204,425 Net fixed assets 324,870    Common equity 701,675 Total assets $1,105,000    Total liabilities and equity $1,105,000 The new owner thinks that inventories are excessive and can be lowered...
RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $300,000, a net income of...
RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $300,000, a net income of $33,000, and the following balance sheet: Cash $38,400 Accounts payable $52,800 Receivables 84,480 Notes payable to bank 20,640 Inventories 211,200 Total current liabilities $73,440 Total current assets $334,080 Long-term debt 88,800 Net fixed assets 145,920 Common equity 317,760 Total assets $480,000 Total liabilities and equity $480,000 The new owner thinks that inventories are excessive and can be lowered to the point where the current...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT