Hutchinson Corporation has zero debt - it is financed only with common equity. Its total assets...
Hutchinson Corporation has zero debt - it is financed only with common equity. Its total assets are $330,000. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio?
Select the correct answer.
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Homework Answers
Answer is a. $ 132,000
Explanation:
Total assets: $ 330,000 ( will remain same as the funds borrowed will be used in paying of common stock)
Target Debt equity ratio: 40%
Therefore, the funds to be borrowed through debts: $ 330,000*40%: $ 132,000
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