Beranek Corp.has $410,000 of assets,and it uses no debt-it is financed only with common equity.The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%,using the proceeds from the borrowing to buy back common stock at its book value.How much must the firm borrow to achieve the target debt ratio?
A)$155,800
B)$164,000
C)$172,200
D)$180,810

Question

Quizplus · Accepted Answer

To achieve a 40% debt/assets ratio, Beranek Corp. needs to have 40% of its assets financed by debt. Therefore, the firm must borrow 40% of $410,000, which is $164,000.