Assume that XYZ Company has a loan agreement that states that it must maintain a fixed-charge coverage ratio greater than or equal to 1.0 They have net income of $75, noncash charges of $25, current loan maturities of $60, stock repurchases of $10, and replacement capital expenditures of $20. Which of the following statements is true? 1) Multiple choice question. - Their fixed-coverage ratio is 1.1. - Their fixed-coverage ratio is 2.0. - They have violated their affirmative covenant since their fixed-coverage charge is less than 1.0. -They can pay a dividend of no more than $20 to remain within the covenant. 2) The net worth safety margin can be calculated as the difference between a firm's Multiple choice question. - actual minimum net worth and covenant minimum net worth. - actual maximum net worth and covenant maximum net worth. - covenant minimum net worth and covenant maximum net worth. - actual minimum net worth and actual maximum net worth. 3) Which of the following are true of commercial paper? Select all that apply Multiple select question. - It includes an interest rate significantly below the rate a bank would charge. It is usually secured by a bank credit line. -It is sold directly to investors by large and financially sound companies. - It is a variation on the seasonal credit line. 4) Which of the following assess and grade the creditworthiness of companies and public entities that sell debt to investors? Multiple select question. - Securities and Exchange Commission - Internal Revenue Service - Standard & Poor's Corp. - Moody's Investors Service - Fitch Inc.
Assume that XYZ Company has a loan agreement that states that it must maintain a fixed-charge coverage ratio greater than or equal to 1.0 They have net income of $75, noncash charges of $25, current loan maturities of $60, stock repurchases of $10, and replacement capital expenditures of $20. Which of the following statements is true? 1) Multiple choice question. - Their fixed-coverage ratio is 1.1. - Their fixed-coverage ratio is 2.0. - They have violated their affirmative covenant since their fixed-coverage charge is less than 1.0. -They can pay a dividend of no more than $20 to remain within the covenant. 2) The net worth safety margin can be calculated as the difference between a firm's Multiple choice question. - actual minimum net worth and covenant minimum net worth. - actual maximum net worth and covenant maximum net worth. - covenant minimum net worth and covenant maximum net worth. - actual minimum net worth and actual maximum net worth. 3) Which of the following are true of commercial paper? Select all that apply Multiple select question. - It includes an interest rate significantly below the rate a bank would charge. It is usually secured by a bank credit line. -It is sold directly to investors by large and financially sound companies. - It is a variation on the seasonal credit line. 4) Which of the following assess and grade the creditworthiness of companies and public entities that sell debt to investors? Multiple select question. - Securities and Exchange Commission - Internal Revenue Service - Standard & Poor's Corp. - Moody's Investors Service - Fitch Inc.
Chapter5: Evaluating Operating And Financial Performance
Section: Chapter Questions
Problem 4EP
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Transcribed Image Text:Assume that XYZ Company has a loan agreement that states that it must maintain a fixed-charge coverage ratio greater
than or equal to 1.0 They have net income of $75, noncash charges of $25, current loan maturities of $60, stock
repurchases of $10, and replacement capital expenditures of $20. Which of the following statements is true?
1) Multiple choice question.
- Their fixed-coverage ratio is 1.1.
- Their fixed-coverage ratio is 2.0.
- They have violated their affirmative covenant since their fixed-coverage charge is less than 1.0.
-They can pay a dividend of no more than $20 to remain within the covenant.
2) The net worth safety margin can be calculated as the difference between a firm's
Multiple choice question.
- actual minimum net worth and covenant minimum net worth.
- actual maximum net worth and covenant maximum net worth.
- covenant minimum net worth and covenant maximum net worth.
- actual minimum net worth and actual maximum net worth.
3) Which of the following are true of commercial paper?
Select all that apply
Multiple select question.
- It includes an interest rate significantly below the rate a bank would charge.
It is usually secured by a bank credit line.
-It is sold directly to investors by large and financially sound companies.
- It is a variation on the seasonal credit line.
4) Which of the following assess and grade the creditworthiness of companies and public entities that sell debt to
investors?
Multiple select question.
- Securities and Exchange Commission
- Internal Revenue Service
- Standard & Poor's Corp.
- Moody's Investors Service
- Fitch Inc.
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