Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 11

Montclair Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000 and total assets of $620,000.
1. Compute Montclair's ( a ) present debt-to-equity ratio and ( b ) the debt-to-equity ratio assuming it borrows $500,000 to fund the project.
2. Evaluate and discuss the level of risk involved if Montclair borrows the funds to pursue the project.