As the Financial vice president for Bear Enterprises, you have the following inf

ID: 2708732 • Letter: A

Question

As the Financial vice president for Bear Enterprises, you have the following information:

Expected net income after tax next year before new financing : $60,000,000

Sinking Fund payments due next year on existing debt: $20,000,000

Interest due next year on existing debt $18,000,000

Conpany Tax rate 25%

Common Stock Price, per share $17

Common Shares outstanding: 22,000,000

For next year assume the firm raises $60 Million of new debt at an interest rate of 9 percent.

Calculate Bear's EBIT

Calculate Bear's Interest Rate

Calculate Bear's times-interest earned ratio for next year assuming the firm raises $60 Million of new debt at an interest rate of 9 percent.

a. $38.50 b. $98.00 c. $22.55 d. $61.89

Calculate Bear's Interest Rate

Answer a. 23.4% b. 2.34% c. .0234% d. 13.4%

Calculate Bear's times-interest earned ratio for next year assuming the firm raises $60 Million of new debt at an interest rate of 9 percent.

Answer a. $3.29 b. $3.59 c. $2.25 d. $4.19

Calculate Bear's EBIT

EBIT = 60,000,000/(1-25%) +18,000,000= $98 million

Interest rate

times-interest earned ratio = EBIT/Interest = 98million/(18,000,000+60000000*9%)= $4.19

b. $98.00

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