Homework Answers
1. Maximum amount of debt allowed = Total equity x Debt equity ratio allowable
= $119898 x 0.85 = $101913
Maximum that can be borrowed = Maximum amount of debt allowed - current debt (total liabilities)
= $101913 - $870 = $101043
2. (a) Percentage of assets finance by debt = (Total debt after borrowing / Total assets after borrowing)*100
= [(870 + 101043) / (120768+101043)]*100
= 45.9%
(b) Percentage of assets financed by debt = (Total equity / Total assets after borrowing) x 100
= [119898 / (120768 + 101043)] x 100
= 54.1%
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