Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 12, Problem 1RQ
Summary Introduction
To discuss: The amount of increase of Company A’s debt to total asset ratio by issuing new bond.
Expert Solution & Answer
Explanation of Solution
The common indicator of the use of borrowed funds and financial leverage of a firm is debt to total asset ratio.
In the year 2011, company A had $65 billion in borrowed funds relative to $270 billion in assets. This generates debt to total assets ratio of 24%. The additional borrowing of $3 billion in the year 2012 will increase the total borrowings to $68 billion.
It is to be noticed that company A did not paid any debt in the year 2011. Then the total asset will increase to $273 billion and the debt to total asset ratio of the firm will rise to 24.9% for an increase of marginally less than 1%.
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Chapter 12 Solutions
Foundations Of Finance
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 1.4MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MCCh. 12 - Prob. 3.1MCCh. 12 - Prob. 3.2MCCh. 12 - Prob. 3.3MC
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