Alpha Corp. is prohibited from issuing more senior debt unless net tangible asse

Question

Alpha Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 200% of senior debt. Currently the company has outstanding $100 million of senior debt and has net tangible assets of $286 million. How much more senior debt can Alpha Corp. issue? (Enter your answer in millions.)

Alpha Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 200% of senior debt. Currently the company has outstanding $100 million of senior debt and has net tangible assets of $286 million. How much more senior debt can Alpha Corp. issue? (Enter your answer in millions.)

Explanation / Answer

Provision of tangible assets for existing senior bonds=100*2=200m

Current tangible assets=286m

Balance Tangible assets=286-200=86

Senior Bonds that can be issued=86*(1/2) = 43m

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