The statement of financial position as of December 31, 2020, for Hopps Corporation follows:

Hopps Corporation has a cash balance of $100 million and the current portion of long-term debt is $75 million.

Required

a. Determine Hopps’ debt to equity ratio and the net debt as a percentage of total capitalization ratio.

b. Hopps is considering a $235-million 10-year bank loan that carries 13% interest payable semiannually to fund development of a state-of-the-art pacemaker. Determine the company’s debt to equity ratio if it borrows the money and uses it to fund development costs.

c. As an alternative to the bank loan, management is considering issuing $235-million 10-year bonds. The bonds pay 10% interest semi-annually and would be issued at 1.277 to yield 6.25%. Determine the company’s debt to equity ratio if it decides to borrow money using bonds.

d. Which of options “b” or “c” is the better option for Hopps if the existing bank loan has a debt to equity covenant ratio of 1.3 times? Why?

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(all amounts in thousands) Liabilities and Shareholders' Equity Current liabilities Long-term liabilities Shareholders' equity Total liabilities and shareholders' equity Assets Current assets Non-current assets $ 175,000 $ 655,000 710,000 565,000 625,000 Total assets $1,365,000 $1,365,000