Goober Corporation has the following simplified (extremely) balance sheet:

Assets	$3,300,000	Liabilities	$1,800,000
		Equity	$1,500,000

The equity is shared equally by three individuals: Browning, Colt, and Winchester.

The liabilities are due to the following:

Ninth National Bank: $800,000 of term loans secured by business property with fixed interest rates and payment schedules; $400,000 unsecured open line of credit charging interest at 3 points over prime rate and principal payments due according to payment and balance formulas.

Shareholder Winchester holds promissory notes with outstanding balances of $600,000. The unsecured notes require principal repayments of 10% of their original face value each year and carry a fixed interest rate comparable to unsecured promissory notes to commercial lenders on unpaid balances. Principal and interest are paid annually on the anniversary date of each note.

Pick the best answer regarding this corporation's capital structure from the choices below.

Question 10 options:

	a. This corporation appears to have significant exposure to charges that it is thinly capitalized.
	b. The promissory notes held by the shareholder do not appear to be treated as legitimate debt by the corporation.
	c. For tax purposes, there doesn't appear to be a problem with this corporation's capital structure.

Answer rating: 100% (QA)

The correct answer is Option b which is The promis... View the full answer