Reference no: EM132631444
At the end of 2017, Montvale Associates borrowed $120,000 from the Bayliner Bank. The debt covenant specified that Montvale's debt/equity ratio could not exceed 1.5:1 during the period of the loan. A summary of Montvale's balance sheet after the loan follows.
2017
Assets
Current assets $130,000
Noncurrent assets350,000
Total assets$480,000
Liabilities and Shareholders' Equity
Current liabilities$130,000
Long-term liabilities 150,000
Shareholders' equity 200,000
Total liabilities and shareholders' equity$480,000
Problem 1: Compute Montvale's debt/equity ratio immediately after the loan. (Round answer to 2 decimal places, e. g. 1.25.)
Problem 2: How much additional debt can the company incur without violating the debt covenant?
Problem 3: How large a dividend can the company declare and pay at the end of 2017 without violating the debt covenant? (Round answer to 0 decimal places, e. g. 125.)
Problem 4: If Montvale had declared, but not yet paid, a $20,000 dividend before it took out the loan, could the company pay the dividend afterward without violating the debt covenant? Why or why not? (Round answer to 2 decimal places, e. g. 12.25.)