Problem 6-7 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 $ 26.0 $ 36 million $ 11 million $ 6 million 16 million 40% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $46 million of new debt at an interest rate of 3 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $2.5 million. c. Calculate next year's earnings per share assuming Adirondack raises the $46 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.1 million new shares at $21 a share instead of raising new debt. Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1 decimal place. a. Times interest earned b. Times burden covered c. Earnings per share d. Times interest earned d. Times burden covered d. Earnings per share
Problem 6-7 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 $ 26.0 $ 36 million $ 11 million $ 6 million 16 million 40% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $46 million of new debt at an interest rate of 3 percent. b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $2.5 million. c. Calculate next year's earnings per share assuming Adirondack raises the $46 million of new debt. d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.1 million new shares at $21 a share instead of raising new debt. Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1 decimal place. a. Times interest earned b. Times burden covered c. Earnings per share d. Times interest earned d. Times burden covered d. Earnings per share
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem 6-7
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
$ 26.0
$ 36 million
$ 11 million
$ 6 million
16 million
40%
a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $46 million of new debt at an interest rate
of 3 percent.
b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal
$2.5 million.
c. Calculate next year's earnings per share assuming Adirondack raises the $46 million of new debt.
d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.1 million
new shares at $21 a share instead of raising new debt.
Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1
decimal place.
a. Times interest earned
b. Times burden covered
c. Earnings per share
d. Times interest earned
d. Times burden covered
d. Earnings per share
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