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Beranek Corp has $720,000 of assets, and it uses no debt--it is financed only with common equity. The new CFO wants to employ enough debt to raise the debt/assets ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? $273,600 $288,000 $302,400 $317,520 $333,396

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hyderali230

Answer:

$288,000

Explanation:

Debt to asset ratio measure the percentage of asset financed by the debt portion. It is also express the percentage of debt in the total capital of the firm.

Total Assets = $720,000

Debt asset ratio = 40%

Debt to Asset ratio = Debt /  Asset

40% = Debt / $720,000

Debt  = $720,000 x 40%

Debt  = $288,000

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