EXERCISE 3: DEBT/COVERAGE RATIOS Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to increase her working capital loan. She figures that an additional loan would increase her finance costs by an extra $10,000. Before seeing her banker, she asks her accoun- tant to determine whether she would have difficulty servicing her debt with the additional finance costs. With the following information, calculate the company's TIE ratio and fixed-charges coverage ratio. If you were the banker, would you approve the loan? Why or why not?
EXERCISE 3: DEBT/COVERAGE RATIOS Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to increase her working capital loan. She figures that an additional loan would increase her finance costs by an extra $10,000. Before seeing her banker, she asks her accoun- tant to determine whether she would have difficulty servicing her debt with the additional finance costs. With the following information, calculate the company's TIE ratio and fixed-charges coverage ratio. If you were the banker, would you approve the loan? Why or why not?
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
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Transcribed Image Text:EXERCISE 3: DEBT/COVERAGE RATIOS
Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to
increase her working capital loan. She figures that an additional loan would increase
her finance costs by an extra $10,000. Before seeing her banker, she asks her accoun-
tant to determine whether she would have difficulty servicing her debt with the
additional finance costs.
With the following information, calculate the company's TIE ratio and fixed-charges
coverage ratio. If you were the banker, would you approve the loan? Why or why not?
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Financial Statement Analysis
Statement of Income
Revenue
$ 600,000
Cost of sales
(200,000)
Gross profit
400,000
Expenses
Sales salaries
(150,000)
Rent
(20,000)
Office salaries
(90,000)
Advertising
(23,000)
Finance costs
(30,000)
Total expenses
(313,000)
Profit before taxes
87,000
Income tax expense
(25,000)
$ 62,000
Profit for the year
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