The impact on interest coverage due to the dramatic expansion of corporate debt. Introduction: Corporate Debt: It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security. Interest coverage ratio: It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

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Answer 1

Question

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

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Assume that the following statements of financial position are stated and a book value. Alpha Corporation Current Assets $15,000 Current Liabilities $5,400 Net Fixed Assets 39,000 Long-Term Debt 10,100   Equity 38,500     $54,000   $54,000 Beta Corporation Current Assets $3,600 Current Liabilities $1,400 Net Fixed Assets 6,700 Long-Term Debt 2,100     Equity 6,800   $10,300   $10,300 Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.

The shareholders of Barley Corporation have voted in favor of a buyout offer from Wheat Corporation. Information about each firm is given here: Barley Wheat Price/earnings ratio 13.5 21 Shares outstanding 90,000 210,000 Earnings $180,000 $810,000 Barley shareholders will receive one share of Wheat stock for every three shares they hold of Barley. Required What will the EPS of Wheat be after the merger? What will be the P/E ratio if the NPV of the acquisition is 0? What must Wheat feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover?

Answer 2

Question

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

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Answer 3

Question

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

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Answer 4

Question

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

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Answer 5

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

Answer 6

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

Answer 7

Chapter 16, Problem 1DQ

Summary Introduction

To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.

Introduction:

Corporate Debt:

It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.

Interest coverage ratio:

It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.

Answer 8

Expert Solution & Answer

Answer to Problem 1DQ

The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.

Answer 12

Ch. 16 - Prob. 1DQ Ch. 16 - What are some specific features of bond...Ch. 16 - What is the difference between a bond agreement...Ch. 16 - Discuss the relationship between the coupon rate...Ch. 16 - Prob. 5DQ Ch. 16 - What method of â€œbond repaymentâ€� reduces debt...Ch. 16 - What is the purpose of serial repayments and...Ch. 16 - Under what circumstances would a call on a bond be...Ch. 16 - Discuss the relationship between bond prices and...Ch. 16 - Prob. 10DQ

Answer to Problem 1DQ

Explanation of Solution

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