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
E) $189,851

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.