Question - Santana Rey 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, 2012, for Business Solutions follow.
Total assets $122,268 Total liabilities $855 Total equity $121,413
Required:
1. The bank has offered a long-term secured note to Business Solutions. The bank's loan procedures require that a client's debt-to-equity ratio not exceed 0.70. As of March 31, 2012, what is the maximum amount that Business Solutions could borrow from this bank?
2. Assume Business Solutions borrows the maximum amount allowed from the bank.
(a) What percentage of assets would be financed by debt?
(b) What percentage of assets would be financed by equity?