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 $ 38 million $ 13 million $8 million $ 27.0 18 million 30% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $48 million of new debt at an interest rate of 4 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.5 million. c. Calculate next year's earnings per share assuming Adirondack raises the $48 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.3 million new shares at $23 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. a. Times interest earned b. Times burden covered c. Earnings per share d. Times interest earned d. Times burden covered d. Earnings per share
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 $ 38 million $ 13 million $8 million $ 27.0 18 million 30% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $48 million of new debt at an interest rate of 4 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.5 million. c. Calculate next year's earnings per share assuming Adirondack raises the $48 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.3 million new shares at $23 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. a. Times interest earned b. Times burden covered c. Earnings per share d. Times interest earned d. Times burden covered d. Earnings per share
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter10: Forecasting Financial Statement
Section: Chapter Questions
Problem 8QE
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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
$ 38 million
$ 13 million
$8 million
$ 27.0
18 million
30%
a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $48 million of new debt at an interest rate
of 4 percent.
b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal
$3.5 million.
c. Calculate next year's earnings per share assuming Adirondack raises the $48 million of new debt.
d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.3 million
new shares at $23 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.
a. Times interest earned
b. Times burden covered
c. Earnings per share
d. Times interest earned
d. Times burden covered
d. Earnings per share
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