What amount of additional debt can be issued for each of the conditions (a), (b), and (c)?
MULTIPLE CHOICE
Law Corporation has P5 million of 16 percent mortgage bonds outstanding. The indenture permits additional bonds to be issued as long as the following conditions are satisfied: (a) The before-tax times-interest-earned ratio is greater than 3. (b) Book value of the mortgaged assets are at least four times the amount of debt. (c) The debt/equity ratio is less than 0.8. The following additional data are given: Income before tax is P12 million, equity is P30 million, book value of mortgaged assets is P60 million, and 20 percent of the proceeds of a new issue would be added to the base of mortgaged assets. What amount of additional debt can be issued for each of the conditions (a), (b), and (c)?
A. (a)P21,666,667.00, (b) P10,526,305.00, and (c) P19,000,000.00
B. (a)P21,666,667.00, (b) P10,526,305.00, and (c) P18,000,000.00
C. (a)P20,666,667.00, (b) P11,526,305.00, and (c) P19,000,000.00
D. (a)P20,666,667.00, (b) P11,526,305.00, and (c) P20,000,000.00
E. None of the above
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