Montclair Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000, and total assets of $610,000.
1. Compute Montclair’s
(a) Present debt-to-equity ratio
(b) The debt-to-equity ratio assuming it borrows $500,000 to fund the project.
2. Evaluate and discuss the level of risk involved if Montclair borrows the funds to pursue the project.