(All Steps) (Calculating debt ratio) Fast Solutions, Inc. has the following financial structure: Accounts payable $ 500,000 Short-term debt 250,000 Current


Question: (Calculating debt ratio) Fast 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
  • Compute Fast’s debt ratio and interest-bearing debt ratio.
  • If the market value of Fast’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 Fast?
  • If you were a bank loan officer who was analyzing whether or not to loan more money to Fast, which of the ratios calculated in parts a and b is most relevant to your analysis? Why?

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