M4 Your firm has tangible assets of $100 million. Youare planning to acquire a firm that is half your firm'ssize. You have bonds with a merger & acquisitioncovenant that requires the combined firm to have aminimum ratio of net tangible assets to debt of1.5:1. Your firm has a ratio of 2:1 and the target firmhas a ratio of 1.2:1. Can you acquire this firm (andthus take on more debt) without violating yourcovenant?

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has a ratio of 1.2:1. Can you acquire this firm (and thus take on more debt) without violating your covenant?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Your firm has tangible assets of $100 million. You
are planning to acquire a firm that is half your firm's
size. You have bonds with a merger & acquisition
covenant that requires the combined firm to have a
minimum ratio of net tangible assets to debt of
1.5:1. Your firm has a ratio of 2:1 and the target firm
has a ratio of 1.2:1. Can you acquire this firm (and
thus take on more debt) without violating your
covenant?

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E12.18