Question

Multiple Choice Question Mahan Corporation expects total sales to increase by 20% over the next year. The corporation has no spare capacity and must increase plant and equipment by 20%. The corporation currently has $100,000 in assets, $40,000 in debt, and $60,000 in equity. The corporation desires to maintain the debt-equity ratio. The corporation's debt will be _____. Multiple choice question. $72,000 $40,000 $60,000 $48,000

Answer 1

$48,000

Step-by-step explanation:

The computation of the corporation debt is shown below:

Since the asset is increased by 20%

The present asset is $100,000

ANd, the increased assets is

= $100,000 + $100,000 × 0.20

= $100,000 + $20,000

= $120,000

Now the debt is

= $120,000 × 0.4

= $48,000

hence, the last option is correct