The balance sheet as of December 31, 1996, for Manheim Corporation follows. Assets Liabilities and Stockholders’ Equity Current assets Noncurrent assets Total assets $ 85,000 Current liabilities $ 70,000 125,000 Long-term liabilities 40,000 Stockholders’ equity 100,000 Total liabilities and $210,000 stockholders’ equity $210,000 REQUIRED:

a. Compute Manheim Corporation’s long-term debt/equity ratio.

b. Assume that Manheim Corporation is considering borrowing money and signing a fiveyear note with the following terms. Face value $40,000 Stated interest rate 0% Effective interest rate 11% Compute the proceeds of the note, and compute the company’s long-term debt/equity ratio if it decides to borrow the money.

c. Assume that the Manheim Corporation is considering issuing bonds that mature on December 31, 2016. The bonds have a face value of $40,000, a stated interest rate of 10 percent, and an effective interest rate of 8 percent. Compute the proceeds from the bond issuance, and compute the company’s long-term debt/equity ratio if it issues the bonds. The bonds pay interest semiannually