Question
In: Finance
The process for the cost of debt assumes the times interest earned is a good proxy...
- The process for the cost of debt assumes the times interest earned is a good proxy for measuring credit risk, what other financial variable if any should be considered? Does this assumption limit the results? ( each time the level of debt changes. Will this occur and does this limit the applicability of your results?
- The base level of interest rates, the risk free rate, changes over time. Is this important in calculating the optimal level. Since the estimate is based on the current environment does it matter if this changes?
- The beta may change over time, does keeping it constant limit your results or is that an acceptable assumption?
Solutions
jeff jeffy answered 1 week agoRelated Solutions
For each year (2019 and 2018) compute Times interest earned Debt ratio Debt/equity ratio Debt to...
For each year (2019 and 2018) compute
Times interest earned
Debt ratio
Debt/equity ratio
Debt to tangible net worth ratio
Balance Sheet
(in
thousands)
2019
2018
Current assets
$ 449,195
$ 433,049
Investments
32,822
55,072
Deferred charges
4,905
12,769
Property, plant, and equipment, net
350,921
403,128
Trademarks and leaseholds
45,031
47,004
Excess of cost over fair market value of net
assets acquired
272,146
276,639
Assets held for disposal
6,062
10,247
$1,161,082
$1,237,908
Total liabilities
$ 689,535
$ 721,149
Total stockholders' equity
471,547
516,759
$1,161,082...
Times-Interest-Earned Ration Calculated the times-interest-earned ratio for Smith & Sons Inc for 2015 and 2016 and...
Times-Interest-Earned
Ration
Calculated the
times-interest-earned ratio for Smith & Sons Inc for 2015 and
2016 and comment on the company’s ability to pay its current
interest payments. Did the company’s ability to pay its current
interest changes improve?
Time interest earned ration =
Income before interest expense and income taxes/Interest
expense
Smith & Sons, Inc
Balance Sheet
Decemober 31, 2016 and
2015
(In millions)
2016
2015
Net sales
10,000
9,500
Cost of goods sold
(5,500)
(5,200)...
Debt ratio, Ratio of Liabilities to Stockholders' Equity, and Times Interest Earned Camper Company and McSead,...
Debt ratio, Ratio of Liabilities to Stockholders' Equity, and
Times Interest Earned
Camper Company and McSead, Inc., are the two largest toy
companies. Condensed liabilities and stockholders' equity from a
recent balance sheet are shown for each company as follows:
Camper
McSead
Current liabilities
$1,477,000
$3,246,000
Long-term debt
795,800
1,906,000
Total liabilities
$2,272,800
$5,152,000
Total stockholders' equity
3,788,000
6,440,000
Total liabilities and stockholders' equity
$6,060,800
$11,592,000
The income from operations and interest expense from the income
statement for both companies...
Determine the times interest earned ratio. Round to one decimal place.
A company reports the following:Income before income tax $4,000,000Interest expense 400,000Determine the times interest earned ratio. Round to one decimal place.
Long-term debt ratio 0.3 Times interest earned 8.0 Current ratio 1.4 Quick ratio 1.0 Cash ratio...
Long-term debt ratio
0.3
Times interest earned
8.0
Current ratio
1.4
Quick ratio
1.0
Cash ratio
0.4
Inventory turnover
4.0
Average collection period
73
days
Use the above information from the tables to work out the
following missing entries, and then calculate the company’s return
on equity. Note: Turnover and the average collection period are
calculated using start-of-year, not average, values. (Enter
your answers in millions. Round intermediate calculations and final
answers to 2 decimal places.)
INCOME STATEMENT
(Figures in...
Long-term debt ratio 0.4 Times interest earned 8.0 Current ratio 1.4 Quick ratio 1.0 Cash ratio...
Long-term debt ratio
0.4
Times interest earned
8.0
Current ratio
1.4
Quick ratio
1.0
Cash ratio
0.2
Inventory turnover
5.0
Average collection period
73
days
Use the above information from the tables to work out the
following missing entries, and then calculate the company’s return
on equity. Note: Turnover and the average collection period are
calculated using start-of-year, not average, values. (Enter
your answers in millions. Round intermediate calculations and final
answers to 2 decimal places.)
INCOME STATEMENT
(Figures in...
(6) debt-to-equity ratio, (7) times interest earned, (8) profit margin relected year-end financial statements of Cabot...
(6) debt-to-equity ratio, (7) times interest earned, (8) profit
margin relected year-end financial statements of Cabot Corporation
follow. (All sales were on credit; selected balance sheet amounts
at December 31, 2016, were inventory, $48,900; total assets,
$189,400; common stock, $90,000; and retained earnings, $22,748.)
CABOT CORPORATION Income Statement For Year Ended December 31, 2017
Sales $ 448,600 Cost of goods sold 297,250 Gross profit 151,350
Operating expenses 98,600 Interest expense 4,100 Income before
taxes 48,650 Income taxes 19,598 Net income...
Long-term debt ratio 0.3 Times interest earned 10.0 Current ratio 1.1 Quick ratio 1.0 Cash ratio...
Long-term debt ratio
0.3
Times interest earned
10.0
Current ratio
1.1
Quick ratio
1.0
Cash ratio
0.4
Inventory turnover
3.0
Average collection period
73
days
Use the above information from the tables to work out the
following missing entries, and then calculate the company’s return
on equity. Note: Turnover and the average collection period are
calculated using start-of-year, not average, values. (Enter
your answers in millions. Round intermediate calculations and final
answers to 2 decimal places.)
Long-term debt ratio 0.1 Times interest earned 8.0 Current ratio 1.2 Quick ratio 1.0 Cash ratio...
Long-term debt ratio
0.1
Times interest earned
8.0
Current ratio
1.2
Quick ratio
1.0
Cash ratio
0.6
Inventory turnover
3.0
Average collection period
73
days
Use the above information from the tables to work out the
following missing entries, and then calculate the company’s return
on equity. Note: Turnover and the average collection period are
calculated using start-of-year, not average, values. (Enter
your answers in millions. Round intermediate calculations and final
answers to 2 decimal places.)
Questions marks are in...
Long-term debt ratio 0.3 Times interest earned 8.0 Current ratio 1.4 Quick ratio 1.0 Cash ratio...
Long-term debt ratio 0.3 Times interest earned 8.0 Current ratio
1.4 Quick ratio 1.0 Cash ratio 0.4 Inventory turnover 4.0 Average
collection period 73 days Use the above information from the tables
to work out the following missing entries, and then calculate the
company’s return on equity. Note: Turnover and the average
collection period are calculated using start-of-year, not average,
values. (Enter your answers in millions. Round intermediate
calculations and final answers to 2 decimal places.)
COMPLETE THE INCOME STATEMENT...
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