Question: Ildi Co. is looking to expand operations. Ildi does not have enough cash on hand to pay for the expansion and, therefore needs to borrow

Ildi Co. is looking to expand operations. Ildi does not have enough cash on hand to pay for the expansion and, therefore needs to borrow additional funds. Currently, Ildi has outstanding debt of $450,000, which is subject to certain debt covenants. Ildi is required to maintain a maximum debt ratio. If the debt ratio rises above the threshold, the entire debt is required to be paid back immediately (comes due).

a. Ildi Co. has total debt of $450,000 and stockholders’ equity of $500,000. What is the current debt ratio?

b. Based on your answer to a above and the bank stipulating that the debt ratio cannot exceed .5, what is the maximum additional amount that Ildi will be able to borrow?

c. What other information could Ildi provide the bank to persuade it to lend the money?

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