# How much can be borrowed in the following case to maintain a debt-equity ratio of 0.75? Hogi Co. has a total debt of \$252,000 and stockholders' equity of \$420,000. Hogi is seeking capital to fund an expansion and plans to issue an additional \$180,000 in common stock. It is also negotiating with a bank to borrow additional funds.  The bank requires a maximum debt-equity ratio of 0.75.  What is the maximum additional amount Hogi will be able to borrow after the common stock is issued?

Hogi Co. currently has a total debt of \$252000 and it has issued equity for \$420000. It plans to finance its expansion by issuing new equity worth \$180000. The total value of equity issued would then be equal to \$420000 + \$180000 = \$600000

Let the amount of money the company is able to borrow from the bank be equal to D. As the maximum debt-equity ratio that the bank is willing to accommodate is 0.75, we get D / \$600000 = 0.75

=> D = 0.75*\$600000

=> D = \$450000

Currently the debt that the company has is \$252000, so it can borrow an additional amount of \$450000 - \$252000 = \$198000, while ensuring that the debt equity ratio does not exceed 0.75.

After the new stock is issued, the company can borrow an additional \$198000.

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