Question

Webb Solutions, Inc. has the following financial structure:
Accounts payable .......... $ 500,000
Short-term debt .......... 250,000
Current liabilities .......... $ 750,000
Long-term debt .......... 750,000
Shareholders’ equity ........ 500,000
Total ............... $2,000,000
a. Compute Webb’s debt ratio and interest-bearing debt ratio.
b. If the market value of Webb’s equity is $2,000,000 and the value of the firm’s debt is equal to its book value, assuming excess cash is zero, what is the debt-to-enterprise-value ratio for Webb?
c. If you were a bank loan officer who was analyzing whether or not to loan more money to Webb, which of the ratios calculated in parts a and b is most relevant to your analysis? Why?



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  • CreatedOctober 31, 2014
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