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Calculating the amount that Beranek Corporation can borrow

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Beranek Corp, has $410,000 of assets, and it uses no debt - it is financed only with common equity. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio?

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Solution Summary

Solution calculates the amount that given firm can borrow to achieve the target debt ratio.

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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