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.
We’ll help your grades soar
Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.
- 30,000+ book summaries
- 20% study tools discount
- Ad-free content
- PDF downloads
- 300,000+ answers
- 5-star customer support
Already a member? Log in here.
Are you a teacher? Sign up now