The Morrit Corporation has $570,000 of debt outstanding, and it pays an interest rate of 10% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

The Morrit Corporation has $570,000 of debt outstanding, and it pays an interest rate of 10% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

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

Section: Chapter Questions

Problem 1PS

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Times-Interest-Earned Ratio The Morrit Corporation has $480,000 of debt outstanding, and it pays an interest rate of 9% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 6%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
The W.C. Pruett Corp. has $600,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 7%. In addition, it has $600,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $2.7 million, its average tax rate is 25%, and its profit margin is 7%. What are its TIE ratio and its return on invested capital (ROIC)?
None
Slush Corporation has two bonds outstanding, each with a face value of $3.4 million. Bond A is secured on the company's head office building; bond B is unsecured. Slush has suffered a severe downturn in demand. Its head office building is worth $1.14 million, but its remaining assets are now worth only $2 million. If the company defaults, what payoff can the holders of bond B expect? Note: Enter your answer in dollars, not in millions. Round your answer to the nearest whole dollar amount. Payoff of bond B
D4)
Slush Corporation has two bonds outstanding, each with a face value of $3.6 million. Bond A is secured on the company's head office building; bond B is unsecured. Slush has suffered a severe downturn in demand. Its head office building is worth $1.16 million, but its remaining assets are now worth only $2 million. If the company defaults, what payoff can the holders of bond B expect? Note: Enter your answer in dollars, not in millions. Round your answer to the nearest whole dollar amount. Payoff of bond B
Safeco Inc. has no debt, and maintains a policy of holding $12 million in excess cash reserves, invested in risk-free Treasury securities. If Safeco pays a corporate tax rate of 21%, what is the cost of permanently maintaining this $12 million reserve? (Hint: What is the present value of the additional taxes that Safeco will pay?)
7.
Slush Corporation has two bonds outstanding, each with a face value of $2.3 million. Bond A is secured on the company's head office building; bond B is unsecured. Slush has suffered a severe downturn in demand. Its head office building is worth $1.03 million, but its remaining assets are now worth only $2 million. If the company defaults, what payoff can the holders of bond B expect? Note: Enter your answer in dollars, not in millions. Round your answer to the nearest whole dollar amount. Payoff of bond B
Jordan, Corp., has debt outstanding with a market value of $3 million. The value of the firmwould be $X million if it were entirely financed by equity. The company also has 360,000shares of stock outstanding that sell at $50 per share. The corporate tax rate is 30 percent. Theexpected bankruptcy cost is 0.9 million. If there is no other market friction like agencycost/benefit, what is X?
You have the following information about two firms, Debt Free, Incorporated and Debt Spree, Incorporated. Both firms have the same prospects for sales and EBIT, and both have the same level of assets, tax rate and borrowing rate. They differ in their use of debt financing. Scenario Sales EBIT Bad year $ 200 $ 16 Normal year $ 275 $ 36 Good year $ 380 $ 52 Debt Free Debt Spree Total assets $ 250 $ 250 Tax rate 21% 21% Debt $ 0 $ 150 Equity $ 250 $ 100 Borrowing rate 16% 16% Required: a. Calculate the interest expense for each firm: Interest expense for Debt Free = $ Interest expense for Debt Spree = $ b. Calculate the following items for each firm for each scenario (bad year, normal year, good year): return on assets (ROA), net profit, and return on equity (ROE). (Use a minus sign to indicate negative answers. Round your answers to 2 decimal places.) Debt Free Debt Spree Scenario ROA Net Profit ROE ROA Net Profit ROE Bad…

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