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
$39 million
$ 14 million
$9 million
a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $49 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
$4.0 million.
a. Times interest earned
b.
Times burden covered
Earnings per share
Times interest earned
Times burden covered
Earnings per share
$ 27.5
c. Calculate next year's earnings per share assuming Adirondack raises the $49 million of new debt.
d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.4 million
new shares at $24 a share instead of raising new debt.
C.
d.
19 million
35%
Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1
decimal place.
