Which of the firms below is likely to receive the most favorable terms when borrowing money...

Which of the firms below is likely to receive the most favorable terms when borrowing money from the bond market?

Firm A: cash coverage ratio = 0.6 and debt-to-equity ratio = 1.2

Firm B: cash coverage ratio = 0.8 and debt-to-equity ratio = 1.5

Firm C: cash coverage ratio = 1.5 and debt-to-equity ratio = 0.6

Firm D: cash coverage ratio = 1.2 and debt-to-equity ratio = 0.8

Solutions

Expert Solution

HIGHER CASH COVERAGE INDICATES THAT COMPANY IS IN MORE COMFORTABLE POSITION IN PAYING THE INTEREST ON DEBT. LOWER DEBT EQUITY RATIO INDICATES THAT COMPANY HAS LOWER DEBT IN COMPARISON TO EQUITY AND SO WILL BE IN A POSITION TO REPAY IT COMFORTABLY.

jeff jeffy answered 8 months ago

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