ejohnson4256
Sep 2, 2011, 04:31 PM
This is what I came up with. Are parts 1, 2, and 3 correct? Thanks in advance!
Lever Age pays an 8 percent coupon on outstanding debt with face value $10 million. The firm's EBIT was $1 million.
1. What is times interest earned?
2. If depreciation is $200,000, what is cash coverage?
3. If the firm must retire $300,000 of debt for the sinking fund each year, what is its "fixed payment cash-coverage ratio" (the ratio of cash flow to interest plus other fixed debt payments)?
1. 1mil/800,000 = 1.25
2. (1 mil + 200,000)/800,000 = 1.5
3. 1,500,000/1,300,000 = 1.2
Fixed payment ratio= EBIT + other debt/ interest + other debt.
It's similar to the equation used for TIE (EBIT/ total interest payable) but, you add debt to the numerator and denominator.
EBIT is 1mil + debt is 500,000, which is 1,500,00. Then divide that by interest payable (8% of 10mil) 800,000 + other debts 500,000 (200,000 +300,000) = 1,300,000. So 1,500,000/1,300,000 = 1.2
Lever Age pays an 8 percent coupon on outstanding debt with face value $10 million. The firm's EBIT was $1 million.
1. What is times interest earned?
2. If depreciation is $200,000, what is cash coverage?
3. If the firm must retire $300,000 of debt for the sinking fund each year, what is its "fixed payment cash-coverage ratio" (the ratio of cash flow to interest plus other fixed debt payments)?
1. 1mil/800,000 = 1.25
2. (1 mil + 200,000)/800,000 = 1.5
3. 1,500,000/1,300,000 = 1.2
Fixed payment ratio= EBIT + other debt/ interest + other debt.
It's similar to the equation used for TIE (EBIT/ total interest payable) but, you add debt to the numerator and denominator.
EBIT is 1mil + debt is 500,000, which is 1,500,00. Then divide that by interest payable (8% of 10mil) 800,000 + other debts 500,000 (200,000 +300,000) = 1,300,000. So 1,500,000/1,300,000 = 1.2