Justice Corporation has P5 million in outstanding 16 percent mortgagebonds. Additional bonds may be issued under the terms of theindenture if the relevant requirements are met: (a) the ratio of before-tax earnings to interest generated is more than 3. (b) The mortgagedassets' book value is at least four times the amount of debt. (c) Thedebt/equity ratio falls below 0.8. The following supplementaryinformation is provided: The income before taxes is P12 million, theequity is P30 million, the book value of mortgaged assets is P60 million,and 20% of the proceeds of a fresh issuance would be added to themortgaged asset base. What is the maximum amount of extra debt thatcan be issued under conditions (a), (b), and (c)?1. (a)P21,666,667.00, (b) P10,526,305.00, and (c) P19,000,000.002. (a)P21, 666,667.00, (b) P10, 526,305.00, and (c) P18, 000,000.003. (a)P20, 666,667.00, (b) P11, 526,305.00, and (c) P19, 000,000.004. (a)P20, 666,667.00, (b) P11, 526,305.00, and (c) P20, 000,000.005. None of the above

Current debt 5 million Interest @ 16% 0.8 million Let's put each of the conditions for the…

Answered: Justice Corporation has P5 million in…

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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