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    Debt ratio

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    The Altman Co. has a debt ratio of 33.33% and it needs to raise $100,000 to expand. Mangement feels that an optimaldebt ratio would be 16.67%. Sales are currently $750,000, and the total assets turnover is 7.5. How should the expansion be financed to achieve the desired debt ratio?

    a) 100% equity
    b) 100% debt
    c) 20% debt, 80%equity
    d) 40% debt, 60% equity
    e) 50% debt 50% equity

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    Solution Preview

    Total asset turnover = Sales/Assets
    Assets = 750,000/7.5 = 100,000.
    Debt ratio = Total debt/total ...

    Solution Summary

    The solution explains how to determine the financing so as to achieve the desired debt ratio.