Adriana Lopez had consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2008, for Success Systems follows.
|
Total assets |
$147,529 |
|
Total Liabilities |
$1,050 |
|
Total Equity |
$146,479 |
Required:
1. The boxing has offered a long-term secured note to Success Systems. The bank’s loan procedures require that a client’s debt-to-equity ration not exceed 0.8. As of March 31, 2008, what is the maximum amount that Success Systems could borrow from this bank?
2. If Success Systems borrows the maximum amount allowed from the bank, what percentage of assets would be financed (a) by debt, and (b) by equity?
3. What are some factors Lopez should consider before borrowing the funds?