Question

If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT? a. Other things held constant, the higher the days sales outstanding ratio, the lower the interest rate the bank would charge. b. The lower the company's inventory turnover ratio, other things held constant, the lower the interest rate the bank would charge the firm. c. Other things held constant, the lower the total debt to total capital ratio, the lower the interest rate the bank would charge. d. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge. e. Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.

Answer 1

Answer: C.

Other things held constant, the lower the total debt to total capital ratio, the lower the interest rate the bank would charge.

Explanation:

Debt ratio is defined as the ratio of total debt to total capital or asset of a company, usually expressed in percentage or decimal. When this ratio is lower and below 1, it means the company has more asset than liability. Then it can consider to lower the interest rate to the borrowing firm