Adria Lopez has 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, 2014, for Success Systems follow.
Total assets . . . . . . . . $ 129,909
Total liabilities . . . . . $ 875
Total equity . . . . . . . $ 129,034
Required:
1. The bank has offered a long term secured note to Success Systems. The bank's loan procedures require that a client's debt to equity ratio not exceed 0.8. As of March 31, 2014, what is the maximum amount that Success Systems could borrow from this bank (rounded to nearest dollar)?
2. If Success Systems borrows the maximum amount allowed from the bank, what percentage of assets would be financed
(a) By debt (b) By equity?
3. What are some factors Adria Lopez should consider before borrowing thefunds?