Question: Ramirez Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000, and total assets of $620,000.
1. Compute Ramirez's
(a) present debt-to-equity ratio and
(b) the debt-to-equity ratio assuming it borrows $500,000 to fund the project.
2. Evaluate and discuss the level of risk involved if Ramirez borrows the funds to pursue the project.