A firm has 2,000,000 shares of stock outstanding, total debt of $3,000,000 at an annual interest...

A firm has 2,000,000 shares of stock outstanding, total debt of $3,000,000 at an annual interest rate

of 8% and annual depreciation expense of $300,000, and is considering borrowing an additional

$6,000,000 at 8% and buying back one-half of those shares. Assuming EBIT of $1.2 million, what is this

company’s cash coverage ratio (a) before and (b) after the proposed restructuring? What can you

conclude about the impact of financial leverage on a firm’s cash coverage ratio?

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 10 months ago

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A firm has 2,000,000 shares of stock outstanding, total debt of $3,000,000 at an annual interest...

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