Question

It is January 2nd and senior management of Chester meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds. Assume the bonds are issued at face value and leverage changes to 2.7. Which of the following statements are true? Select all that apply.
Select: 3
Chester’s long-term debt will rise by $9,000,000
The total investment for Chester will be $211,673,239
Total liabilities will be $138,405,597
Working capital will remain the same at $15,274,216
Total Assets will rise to $224,822,631

Answer 1

sloution:

given

It is January 2nd and senior management of Chester meets to determine their investment plan for the year.

They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds.
Assume the bonds are issued at face value and leverage changes to 2.7.

If Total Assets = $224822637

Total liabilities before = $138405597

New liability = $10,000,000;

Stockholders' Equity = $224822637 - $138405597 - $10,000,000
= $76417040

Leverage = Total Assets / Total Stockholders' Equity
= S224822631 ÷ $76417040 = 2.94

Therefore, the following statements are correct.

Total liabilities will be $138405597

Working Capital will remain the same at $15,274216

Total Assets will rise to $224,822,631

We don't have the foggiest idea about the data with respect to speculations in this manner, we can't guarantee of alternative b and it is obvious from the inquiry that the long haul risk is raising by $10,000,000 so choice d doesn't hold great.

Working capital stays same except if the money is utilized for obtaining the hardware. Upto the date of gear buy, the working capital would stay same.