a) Falco Inc. is considering a debt issue and is trying to determine the appropriate amount to issue. Considering the information in the table below, indicate which amount borrowed you believe to be the optimal level of debt and explain completely why.

a) Falco Inc. is considering a debt issue and is trying to determine the appropriate amount to issue. Considering the information in the table below, indicate which amount borrowed you believe to be the optimal level of debt and explain completely why.

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter6: Building And Maintaining Good Credit

Section6.2: Three Ways To Set Your Own Debt Limit

Problem 1CC

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

a) Falco Inc. is considering a debt issue and is trying to determine the appropriate amount to
issue. Considering the information in the table below, indicate which amount borrowed you
believe to be the optimal level of debt and explain completely why.

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