Question

A startup is developing its business plan. It will require $565,000 of assets, and it projects...

A startup is developing its business plan. It will require $565,000 of assets, and it projects $500,000 of sales and $391,000 of operating costs for the first year. Management is quite sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 5%, but the bank requires it to have a Times Interest Earned (TIE) of at least 6x, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt-to-assets ratio the startup can use?

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

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