[gimaniro]

B1. (Choosing financial targets) Bixton Company’s new chief financial officer is evaluating
Bixton’s capital structure. She is concerned that the firm might be underleveraged, even
though the firm has larger-than-average research and development and foreign tax credits
when compared to other firms in its industry. Her staff prepared the industry comparison
shown here.
a. Bixton’s objective is to achieve a credit standing that falls, in the words of the chief
financial officer, “comfortably within the ‘A’ range.” What target range would you recommend
for each of the three credit measures?
b. Before settling on these target ranges, what other factors should Bixton’s chief financial
officer consider?
c. Before deciding whether the target ranges are really appropriate for Bixton in its current
financial situation, what key issues specific to Bixton must the chief financial officer
resolve?

Rating Category Fixed Charge Coverage Operations/Total Debt Long-Term Debt/Capitalization

Aa 4.00-5.25x 60-80% 17-23%
Aa 3.00-4.30 45-65 22-32
Baa 1.95-3.40 35-55 30-41

[Curlyben]

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