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

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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A We can calculate Webbs debt ratio using equation 151 Debt ratio Webbs total debt includes both its current liabilities of 750000 and its longterm de... View full answer

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