You are analyzing the leverage of two firms and you noted the following (all values in millions of dollars) Debt Book Equity Market Equity Operating Income Interest Expense Firm A 65 75 80 45 12 Firm B 60 40 50 22 10 Which firm will be in a better position to provide a better interest cover? a. Firm A will better because its coverage ratio is 2.2 b. Both firms are equal in providing adequate interest coverage. c. Firm B will be better because its interest cover ratio is lower than that of firm A d. Firm A is better because it coverage ratio is higher (3.75) compared to firm B
You are analyzing the leverage of two firms and you noted the following (all values in millions of dollars) Debt Book Equity Market Equity Operating Income Interest Expense Firm A 65 75 80 45 12 Firm B 60 40 50 22 10 Which firm will be in a better position to provide a better interest cover? a. Firm A will better because its coverage ratio is 2.2 b. Both firms are equal in providing adequate interest coverage. c. Firm B will be better because its interest cover ratio is lower than that of firm A d. Firm A is better because it coverage ratio is higher (3.75) compared to firm B
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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Question
You are analyzing the leverage of two firms and you noted the following (all values in millions of dollars)
|
|
Debt |
Book Equity |
Market Equity |
Operating Income |
Interest Expense |
|
Firm A |
65 |
75 |
80 |
45 |
12 |
|
Firm B |
60 |
40 |
50 |
22 |
10 |
Which firm will be in a better position to provide a better interest cover?
a.
Firm A will better because its coverage ratio is 2.2
b.
Both firms are equal in providing adequate interest coverage.
c.
Firm B will be better because its interest cover ratio is lower than that of firm A
d.
Firm A is better because it coverage ratio is higher (3.75) compared to firm B
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