Explain the relationship between the debt ratio and insolvency?
What will be an ideal response?
Answer: The debt ratio shows the relationship between your assets, or how much you own, and your liabilities, or how much you owe. Your assets minus your liabilities equals your net worth. If your debt ratio is a fraction below 1.0, then your assets are larger than your debt, leaving you solvent with positive net worth. If your debt ratio is larger than 1.0, then your debt is greater than your assets, leaving you insolvent with negative net worth.
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Spectronix Inc operates in a world of perfect capital markets, has no debt, and has a required rate of return on equity of 10%
An executive manager has suggested that borrowing money to buy back outstanding stock is a good idea because it would replace equity financing with less expensive debt financing, thus increasing the value of the firm. Assume the firm issues new debt with a required return of of 5% to repurchase 30% of the outstanding stock. What is the cost of equity at the conclusion of this transaction? A) 21.67% B) 12.14% C) 16.43% D) 45.00%
Leslie is managing the editorial and production processes of a small book her company is publishing. First the editing will be done, then the typesetting. She wants to make a chart to follow progress, chapter by chapter
Should Leslie make a Gantt chart or a PERT chart for her project? What will be an ideal response?