What is the maximum debt ratio the firm can use?

The Howe Computer Company has grown rapidly during thepast 5 years. Recently, its commercial bank urged the company to consider increasing itspermanent financing. Its bank loan under a line of credit has risen to $150,000, carrying a10% interest rate, and Howe has been 30 to 60 days late in paying trade creditors. Discussions with an investment banker have resulted in the decision to raise $250,000at this time. Investment bankers have assured Howe that the following alternatives arefeasible (flotation costs will be ignored):Alternative 1: Sell common stock at $10 per share.Alternative 2: Sell convertible bonds at a 10% coupon, convertible into 80 shares ofcommon stock for each $1,000 bond (i.e., the conversion price is $12.50 per share).Alternative 3: Sell debentures with a 10% coupon; each $1,000 bond will have 80 warrantsto buy 1 share of common stock at $12.50.Keith Howe, the president, owns 80% of Howe’s common stock and wants to maintain controlof the company; 50,000 shares are…

Please be accurate

A DI has assets of $10 million consisting of $1 million in cash and $9 million in loans. The DI has core deposits of $6 million, subordinated debt of $2 million, and equity of $2 million. Increases in interest rates are expected to cause a net drain of $2 million in core deposits over the year. The average cost of deposits is 6 percent, and the average yield on loans is 8 percent. The DI decides to reduce its loan portfolio to offset this expected decline in deposits. What will be the effect on net interest income and the size of the DI after the implementation of this strategy? If the interest cost of issuing new short-term debt is expected to be 7.5 percent, what would be the effect on net interest income of offsetting the expected deposit drain with an increase in interest-bearing liabilities? What will be the size of the DI after the drain if the DI uses this strategy? What dynamic aspects of DI management would further support a strategy of replacing the deposit…