At the end of 2017, Montvale Associates borrowed $120,000 from
the Bayliner Bank. The debt covenant specified that Montvale’s
debt/equity ratio could not exceed 1.5:1 during the period of the
loan. A summary of Montvale’s balance sheet after the loan
follows.
2017
Assets
Current assets
$130,000
Noncurrent assets
350,000
Total assets
$480,000
Liabilities and Shareholders’ Equity
Current liabilities
$130,000
Long-term liabilities
150,000
Shareholders’ equity
200,000
Total liabilities and shareholders’
equity
$480,000
A) Compute Montvale’s debt/equity ratio immediately after the
loan....