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Question
The Altman Company has a debt-to-assets ratio of 33 percent, and it needs to raise $100,000 to expand. Management feels that an optimal debt-to-assets ratio would be 16.67 percent. Sales are currently $750,000, and the total assets turnover is 7.5. How should the expansion be financed so as to produce the desired debt-to-assets ratio?
a. Finance it all with equity.
b. Finance it all with debt.
c. Finance 20% debt, 80% equity.
d. Finance 40% debt, 60% equity.
e. Finance 50% debt, 50% equity.
Answer
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