Sun Minerals, Inc., is considering issuing additional long-term debt to finance an expansion. Currently, the company has $50 million in 12 percent debt outstanding. Its after-tax net income is $12 million, and the company is in the 40 percent tax bracket. The company is required by the debt holders to maintain its times interest earned ratio at 3.7 or greater. Do not round intermediate calculations. a. What is the present coverage (times interest earned) ratio? Round your answer to one decimal place. times b. How much additional 12 percent debt can the company issue now and maintain its times interest earned ratio at 3.7? (Assume for this calculation that earnings before interest and taxes remain at their present level.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. 2$ million c. If the interest rate on additional debt is 14 percent, how much unused "debt capacity" does the company have? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

Sun Minerals, Inc., is considering issuing additional long-term debt to finance an expansion. Currently, the company has $50 million in 12 percent debt outstanding. Its after-tax net income is $12 million, and the company is in the 40 percent tax bracket. The company is required by the debt holders to maintain its times interest earned ratio at 3.7 or greater. Do not round intermediate calculations. a. What is the present coverage (times interest earned) ratio? Round your answer to one decimal place. times b. How much additional 12 percent debt can the company issue now and maintain its times interest earned ratio at 3.7? (Assume for this calculation that earnings before interest and taxes remain at their present level.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. 2$ million c. If the interest rate on additional debt is 14 percent, how much unused "debt capacity" does the company have? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 17P

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