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Hutchinson Corporation has zero debt ⎯it is financed only with common equity. Its total assets are $410,000. 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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eooyibo123

Answer:

Required Debt= $164,000

Explanation:

Debt to asset ratio also called debt ratio is a leverage ratio and is calculated by dividing debt divided by total assets. It is used to measure solvency.

For Hutchinson Corporation

Target debt ratio= 40%

Total assets= $410,000

Debt ratio= Debt/Total assets

0.40 = Debt/ 410,000

Debt= 410,000 * 0.40

Debt= $164,000

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