Beranek Corp has $855,000 of assets (which equal total invested capital), and it uses no debt—it is financed only with common eq

Question

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Beranek Corp has $855,000 of assets (which equal total invested capital), and it uses no debt—it is financed only with common eq

uity. The new CFO wants to employ enough debt to raise the total debt to total capital ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio?
a. $287,280
b. $342,000
c. $318,060
d. $403,560
e. $277,020

Business

1 answer:

arsen [3.4K] · Answer 1 · 2026-03-28T17:40:41+03:00

Answer:

To reach the desired debt ratio, the firm needs to secure $342,000

Explanation:

Information provided in the query:

Total invested capital amounts to $855,000

Required Debt to total capital ratio is 40%

Now,

The Debt to total capital ratio can be computed as:

= [ Debt ÷ Total invested capital ] × 100%

Therefore,

according to the provided information

40% = [ Debt ÷ $855,000 ] × 100%

or

Debt ÷ $855,000 = 0.40

or

Debt = 0.40 × $855,000

Consequently,[TAG_67]]

To achieve the targeted debt ratio, the firm has to borrow $342,000