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$ 51millionSinking-fund payments due next year on the existing debt$ 26millionInterest due next year on the existing debt$ 21millionCommon stock price, per share$ 33.5 Common shares outstanding31millionCompany tax rate35% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent.Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million.Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt.Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.

The Times Interest Earned (TIE) ratio, also known as the interest coverage ratio, measures how…

Answered: As the chief financial officer of…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$ 51	million
Sinking-fund payments due next year on the existing debt	$ 26	million
Interest due next year on the existing debt	$ 21	million
Common stock price, per share	$ 33.5
Common shares outstanding	31	million
Company tax rate	35%

Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent.
Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million.
Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt.
Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.

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