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Dafna1 [17]
3 years ago
12

A new firm is developing its business plan. It will require $715,000 of assets (which equals total invested capital), and it pro

jects $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
Business
1 answer:
Serga [27]3 years ago
4 0

The maximum debt to capital ratio (measured as debt/total invested capital) the firm can use is 44.29%.

<h3>Maximum debt to capital ratio:</h3>

TIE:

TIE = EBIT / Interest

EBIT =$450,000 -$355,000

EBIT= $95,000

Interest:

4 = $95,000 / Interest

Interest = $95,000 / 4 = $23,750.

Amount of debt:

Amount of debt=$23,750 / .075

Amount of debt= $316.666.70

Debt Ratio:

Debt ratio= $316,666.70 / 715,000 ×100

Debt ratio=44.289%

Debt ratio=44.29%(Approximately)

Inconclusion the maximum debt to capital ratio (measured as debt/total invested capital) the firm can use is 44.29%.

Learn more about debt to capital ratio here:brainly.com/question/16820767

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Answer:

c. $300; negative $100

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Accounting profit = Total Revenue - Total cost

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Economic profit is accounting profit less implicit cost or opportunity cost.

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Implicit cost = $20 × 20 = $400

Economic profit = $300 - $400 = $-100

I hope my answer helps you

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“Interbrand evaluates businesses’ brand value based on a comprehensive analysis of multiple factors including financial performa
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The significance of creating of competitive advantage for a multinational electronics corporation such as Samsung is to be able to  expand on international markets and to be able to maintain the Lower production costs.

<h3>What is importance of of Competitive Advantage</h3>

A competitive advantage serves as one that distinguishes a company from its competitors.

This helps in the getting of more customers, as well as  brand loyalty and it is very essential to business so as be able to succeed.

In this case, The significance of creating of competitive advantage for a multinational electronics corporation such as Samsung is to be able to  expand on international markets and to be able to maintain the Lower production costs.

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2 years ago
What is short term debt?<br>​
nydimaria [60]

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