Answer:
the company can borrow maximum of $268,000
Explanation:
Given:
total liabilities = $660,000
total equity = $342,000
Total Cost of shares = 12,000 shares × $15 = $180,000
Total asset before loan = total liabilities + total equity + Cost of shares
=$660,000 + $342,000 + 180,000
= $1,182,000
Let x represent the maximum amount that the company can borrow =
(Total liabilities + x) ÷ ( Total asset before loan + x) = debt-to-asset ratio
Where debt-to-asset ratio = 0.64
So ($660,000+ x) / ($1,182,000 + x) = 0.64
Cross multiply
$660,000+ x = 0.64 ($1,182,000 + x)
$660,000+ x = 756,480 + 0.64x
x - 0.64x = $756,480 - $660,000
0.36x = $96,480
x = $268,000
the company can borrow maximum of $268,000
