Beranek Corp has $720,000 of assets (which equal total invested capital), and it uses no debt-it is financed only with common equity. 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? Group of answer choices $333,396 $273,600 $302,400 $288,000 $317,520

The firm borrows $288,000 to achieve the target debt ratio.

Option D is correct ($288,000)

Explanation:

Given dа ta:

Assets (equal total invested capital) = $720,000

The total debt to total capital ratio=40%=0.40.

Required:

How much must the firm borrow to achieve the target debt ratio?

Solution:

Amount borrowed=Assets*The total debt to total capital ratio

Amount borrowed=$720,000*0.4

Amount borrowed=$288,000

The firm borrows $288,000 to achieve the target debt ratio.

Option D is correct ($288,000)