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what are some factors santana rey should consider before borrowing the funds 648118

Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long term bank loan. Selected account balances at March 31, 2012, for Business Solutions follow.

Total assets

$120,268

Total liabilities

$875

Total equity

$119,393

Required

1. The bank has offered a long term secured note to Business Solutions. The bank’s loan procedures require that a client’s debt to equity ratio not exceed 0.8. As of March 31, 2012, what is the maximum amount that Business Solutions could borrow from this bank (rounded to nearest dollar)?

2. If Business Solutions borrows the maximum amount allowed from the bank, what percentage of assets would be financed (a) by debt and (b) by equity?

3. What are some factors Santana Rey should consider before borrowing the funds?

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