Question

g Beranek Corp has $855,000 of assets (which equal total invested capital), and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to raise the total debt to total capital 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?

Answer 1

Answer is $342000

Step-by-step explanation:

Given that the assets= $855,000

Total capital = 40%

Please follow the following steps to find out how much must the firm borrow to achieve the target debt ratio .

To achieve the target debt ratio firm should borrow 40% of the total asset

Which means that 40% of $855000 = $342000.

Therefore the correct answer is $342000.