What is the maximum amount Gamma can borrow and not exceed a debt ratio of 0.2?
A)$3,750,000
B)$600,000
C)$6,000,000
D)$5,750,000

Question

Quizplus · Accepted Answer

The debt ratio is calculated as total debt divided by total assets. To maintain a debt ratio of 0.2, Gamma's total debt should not exceed 20% of its total assets. If the total assets are $18,750,000, then 20% of that is $3,750,000, which is the maximum amount Gamma can borrow without exceeding the debt ratio of 0.2.

What Is the Maximum Amount Gamma Can Borrow and Not