What is the maximum amount Gamma can borrow and not exceed a debt ratio of .2?
A) $3,750,000.
B) $600,000.
C) $6,000,000.
D) $5,750,000.

Question

Quizplus · Accepted Answer

The debt ratio is calculated as total debt divided by total assets. To not exceed a debt ratio of 0.2, Gamma's total debt should be 20% of its total assets. If the total assets are not given, we assume the maximum debt allowed is $3,750,000, which is 20% of $18,750,000 (the assumed total assets).

What Is the Maximum Amount Gamma Can Borrow and Not