Question

It is January 2nd and senior management of Baldwin meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds.   Assume the bonds are issued at face value and leverage changes to 2.7. Which of the following statements are true? Select all that apply.

Select: 3

Baldwin’s long-term debt will rise by $10,000,000 Working capital will remain the same at $13,204,535 Total liabilities will be $130,799,470 Total Assets will rise to $209,539,649 The total investment for Baldwin will be $13,058,351

Answer 1

As we know the accounting equation Total assets-Total liabilities-stock holder's Equity 209539649-130799470-Stock holder's Equity Stock holder's Equity is $78,740,179/- Leverage ratio is Total assets/Total Stockholder's equity Leverage ratio is-209539649/78740179 Leverage ratio is 2.7 times. So options are: Baldwin's long-term debt will rise by $10,000,000 Total liabilities will be $130,799,470 Total Assets will rise to $209,539,649