As the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before new financing Sinking-fund payments due next year on the existing debt Interest due next year on the existing debt Common stock price, per share Common shares outstanding Company tax rate $ 35 million $ 10 million $ 5 million $ 25.5 15 million 35% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $45 million of new debt at an interest rate of 2 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $2.0 million. c. Calculate next year's earnings per share assuming Adirondack raises the $45 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.0 million new shares at $20 a share instead of raising new debt. Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1 decimal place. Answer is complete but not entirely correct. a. Times interest earned 10.0 × b. Times burden covered 4.3 x C. Earnings per share $ 2.29 x d. Times interest earned 10.8 x d. Times burden covered 5.9 x d. Earnings per share $ 1.78 x
As the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before new financing Sinking-fund payments due next year on the existing debt Interest due next year on the existing debt Common stock price, per share Common shares outstanding Company tax rate $ 35 million $ 10 million $ 5 million $ 25.5 15 million 35% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $45 million of new debt at an interest rate of 2 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $2.0 million. c. Calculate next year's earnings per share assuming Adirondack raises the $45 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.0 million new shares at $20 a share instead of raising new debt. Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1 decimal place. Answer is complete but not entirely correct. a. Times interest earned 10.0 × b. Times burden covered 4.3 x C. Earnings per share $ 2.29 x d. Times interest earned 10.8 x d. Times burden covered 5.9 x d. Earnings per share $ 1.78 x
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Vijay
Transcribed Image Text:As the chief financial officer of Adirondack Designs, you have the following information:
Next year's expected net income after tax but before new financing
Sinking-fund payments due next year on the existing debt
Interest due next year on the existing debt
Common stock price, per share
Common shares outstanding
Company tax rate
$ 35 million
$ 10 million
$ 5 million
$ 25.5
15 million
35%
a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $45 million of new debt at an interest rate
of 2 percent.
b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal
$2.0 million.
c. Calculate next year's earnings per share assuming Adirondack raises the $45 million of new debt.
d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.0 million
new shares at $20 a share instead of raising new debt.
Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1
decimal place.
Answer is complete but not entirely correct.
a. Times interest earned
10.0 ×
b.
Times burden covered
4.3 x
C.
Earnings per share
$
2.29 x
d.
Times interest earned
10.8 x
d.
Times burden covered
5.9 x
d.
Earnings per share
$
1.78 x
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