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1 June, 12:07

Bostian, Inc. has total assets of $660,000. Its total debt outstanding is $185,000. The Board of Directors has directed the CFO to move towards a debt-to-assets ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?

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  1. 1 June, 12:36
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    Company must add $178,000 more debt to achieve the target debt ratio

    Explanation:

    Debt to asset ratio = (Total outstanding liabilty / Total Assets) x 100

    Current Debt to asset ratio = (185,000 / 660,000) x 100 = 28%

    Target debt to asset ratio = 55%

    According to given condition

    55% = Total outstanding debt / 660,000

    Total outstanding debt = 660,000 x 55%

    Total outstanding debt = $363,000

    Additional debt for taget debt to assets ratio = $363,000 - 185,000

    Additional debt for taget debt to assets ratio = $178,000
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