Final answer:
To achieve the target debt ratio, Bastion Inc. needs to add or subtract an amount calculated by subtracting the total debt outstanding from the target debt. The target debt is determined by multiplying the total assets by the target debt ratio of 55%. The total assets can be found by adding the total debt and the total debt outstanding.
Step-by-step explanation:
To determine how much the company must add or subtract to target the debt ratio, we need to calculate the target debt. The formula to calculate the target debt is:
Target Debt = Total Assets * Target Debt Ratio
Target Debt = Total Assets * 0.55
From the given information, we have:
Total Debt: $540,000
Total Debt Outstanding: $185,000
We can calculate the Total Assets using the formula:
Total Assets = Total Debt + Total Debt Outstanding
Total Assets = $540,000 + $185,000
Once we calculate the Total Assets, we can determine the target debt by multiplying it by the target debt ratio:
Target Debt = Total Assets * 0.55
Target Debt = ($540,000 + $185,000) * 0.55
Finally, to find how much the company must add or subtract to achieve the target debt ratio, subtract the Total Debt Outstanding from the target debt:
Add or Subtract = Target Debt - Total Debt Outstanding
Add or Subtract = (($540,000 + $185,000) * 0.55) - $185,000