Ima Broake is trying to expand her small business, Ima Fun Caterer. She has taken out a
$10,000 loan for kitchen equipment and her company is currently worth $15,000. As her
accountant, she has asked you about whether she can take on a new loan that the bank
says she must have at least 25% equity in her business to obtain. The best response that
you can give Ima is:
O The liquidity ratio shows that Ima Fun Caterer can take on an additional $5,000 in loans as long as
the loans are not due in full for five more years.
O Ima's debt to equity ratio is currently 150% so the bank will not approve any new loans for the
business.
O Ima's debt to equity ratio is 66.7% so the bank will only approve an additional $1,125 as Ima's equity
will then equal 25%.
O Ima can take out a loan of $10,000 as her company will then be worth $25,000 and the new $10,000
loan is less than 75% of the total value of the company.