As the chief financial officer of Adirondack Designs, you have the following information: Next year’s expected net income after tax but before new financing $ 51 million Sinking-fund payments due next year on the existing debt $ 26 million Interest due next year on the existing debt $ 21 million Common stock price, per share $ 33.5 Common shares outstanding 31 million Company tax rate 35% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent. Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million. Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt. Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.
As the chief financial officer of Adirondack Designs, you have the following information: Next year’s expected net income after tax but before new financing $ 51 million Sinking-fund payments due next year on the existing debt $ 26 million Interest due next year on the existing debt $ 21 million Common stock price, per share $ 33.5 Common shares outstanding 31 million Company tax rate 35% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent. Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million. Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt. Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 20P
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Question
As the chief financial officer of Adirondack Designs, you have the following information:
| Next year’s expected net income after tax but before new financing | $ 51 | million |
|---|---|---|
| Sinking-fund payments due next year on the existing debt | $ 26 | million |
| Interest due next year on the existing debt | $ 21 | million |
| Common stock price, per share | $ 33.5 | |
| Common shares outstanding | 31 | million |
| Company tax rate | 35% |
- Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent.
- Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million.
- Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt.
- Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.
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Follow-up Question
You're response for A was correct.
B is supposed to be the times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million.
C, and the three responses for D were incorrect.
Please re-evaluate your work and answers.
Note: Do not round intermediate calculations. Round "Earnings per share" answers to 2 decimal places and other answers to 1 decimal place.
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