Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A startup is developing its business plan. It will require $565,000 of assets, and it projects $500,000 of sales and $391,000 of operating costs for
A startup is developing its business plan. It will require $565,000 of assets, and it projects $500,000 of sales and $391,000 of operating costs for the first year. Management is quite sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 5%, but the bank requires it to have a Times Interest Earned (TIE) of at least 6x, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt-to-assets ratio the startup can use?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started