Answer to Question #310166 in Accounting for Yanyan

Question

The bank is requiring a debt-to-equity rate of 0.75. what is the maximum additional amount will be able to borrow

Answer 1

Debt/equity ratio = debt/equity

amount of debt to be borrowed = Debt/equity ratio *equity

Amount to borrow = 0.75*700000 = 525000

The current debt is $420000 so the amount the firm should borrow = $525000- $420000 = $105000