A firm earned $10,000 before interest and taxes, has a 36% tax rate, and has the following debt outstanding: First mortgage bond, 9.0% $ 5,000 Debenture, 10.2% 10,000 Subordinated bond, 12.0% 6,000 Total long-term debt $21,000 The annual coverage of the firm’s debt is

A firm earned $10,000 before interest and taxes, has a 36% tax rate, and has the following debt outstanding: First mortgage bond, 9.0% $ 5,000 Debenture, 10.2% 10,000 Subordinated bond, 12.0% 6,000 Total long-term debt $21,000 The annual coverage of the firm’s debt is

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section2.A: Taxes

Problem 2P

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Question

A firm earned $10,000 before interest and taxes, has a 36% tax rate, and has the following debt outstanding:

First mortgage bond, 9.0%

$ 5,000

Debenture, 10.2%

10,000

Subordinated bond, 12.0%

6,000

Total long-term debt

$21,000

The annual coverage of the firm’s debt is

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