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What are the firm debt ratio and debt-to-equity ratio

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Reference no: EM132531273

Question 1: Barnaby's Fatburner Gyms Ltd operates a chain of exercise facilities throughout Victoria and New South Wales. The firm is considering offering share dividends to its shareholders either via share bonus issue or share split. The firm currently has 8 million shares outstanding, which have a current market price of $12. If all else remains constant, what will be the price of Barnaby's shares after each of the following scenarios:

a. A 20% bonus share issue

b. A 32.5% bonus share issue

c. A 4 for 1 share split

d. What would be the total number of shares outstanding after (a), (b) and (c)?

Question 2: Green Curry Kitchen operates two restaurants in Hobart and Launceston, Tasmania, and has the following financial structure:

Account payables: $100,000

Shorterm-Debt : $400,000

Current liabilities: $500,000

Long term debt : $2,000,000

Owner's equity: $1,500,000

Total: $4,000,000

The firm is considering an expansion that would involve raising an additional $2 million.

a. What are the firm's debt ratio and debt-to-equity ratio in its present capital structure?

b. If the firm wants to have a debt ratio of 50%, how much equity does it need to raise in order to finance the expansion?

Reference no: EM132531273

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