Gary's Gadgets prepared the following preliminary balance sheet a few days before its December 31 yearend:
a.Use the preliminary balance sheet to calculate the debt-to-equity ratio.
b.Gary thinks that investors will be more interested in his company if it has very few liabilities.He plans to pay $2,000 of the accounts payable before December 31.What will the new debt-to-equity ratio be after the payment has been made?
c.Is it ethical to make last-minute payments to improve the appearance of the balance sheet?
d.Is it true that investors prefer companies with very little debt? Explain positive financial leverage.
Correct Answer:
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b.5....
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