The Altman Company has a debt-to-assets ratio of 33.33 percent,and it needs to raise $100,000 to expand.Management feels that an optimal debt-to-assets ratio would be 16.67 percent.Sales are currently $750,000,and the total assets turnover is 7.5.How should the expansion be financed so as to produce the desired debt-to-assets ratio?
A) Finance it all with equity.
B) Finance it all with debt.
C) Finance 20% debt,80% equity.
D) Finance 40% debt,60% equity.
E) Finance 50% debt,50% equity.

Question

Quizplus · Accepted Answer

To achieve a debt-to-assets ratio of 16.67%, the company should avoid increasing its debt. Financing the expansion entirely with equity will help maintain or lower the current debt ratio towards the desired level.

The Altman Company Has a Debt-To-Assets Ratio of 33