1. Please refer to the financial information for Squamish Equipment above. For n
ID: 2654819 • Letter: 1
Question
1. Please refer to the financial information for Squamish Equipment above. For next year, calculate Squamish’s times-burden-covered ratio if Squamish sells 2 million new shares at $20 a share.
2. Please refer to the financial information for Squamish Equipment above. For next year, calculate Squamish’s earnings per share if Squamish sells 2 million new shares at $20 a share.
3. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s times-interest-earned ratio for next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent
4. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s times-burden-covered ratio for the next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent and that annual sinking fund payments on the new debt will equal $8 million.
5. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s earnings per share next year assuming Squamish raises $40 million of new debt at an interest rate of 7 percent.
1. Please refer to the financial information for Squamish Equipment above. For next year, calculate Squamish’s times-burden-covered ratio if Squamish sells 2 million new shares at $20 a share.
2. Please refer to the financial information for Squamish Equipment above. For next year, calculate Squamish’s earnings per share if Squamish sells 2 million new shares at $20 a share.
3. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s times-interest-earned ratio for next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent
4. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s times-burden-covered ratio for the next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent and that annual sinking fund payments on the new debt will equal $8 million.
5. Please refer to the financial information for Squamish Equipment above. Calculate Squamish’s earnings per share next year assuming Squamish raises $40 million of new debt at an interest rate of 7 percent.
Squamish Equipment Selected financial information Expected net income after tax next year before new financing Sinking-fund payments due next year on existing debt Interest due next year on existing debt Company tax rate Common stock price, per share Common shares outstanding $40 million $14 million $15 million 36% $20.00 18 millionExplanation / Answer
Answer
Answer No. 1
Times Burden Covered ratio = EBIT/ Interest + [principal payment x (1 – tax rate)]
Figures in $
Particulars
Amount
Expected net income after tax next year
a
40000000
1 - company tax rate
b
0.64
Expected net income before tax next year (a/b)
c
62500000
Interest due next year
d
15000000
Expected net income before interest and tax next year (c+d)
77500000
= 77500000 / 15000000 + [14000000 * ( 1 – 0.36)]
= 77500000 / 15000000 + 8960000
= 77500000 / 23960000
= 3.23 times
Answer : Times Burden Covered ratio is 3.23 times
Answer No. 2
Figures in $
Particulars
Amount
Expected net income after tax next year
a
40000000
Existing and new common shares
b
20000000
(18000000 + 2000000)
Earning per share (a/b)
c
2.00
Answer No. 3
Times-interest-earned ratio = EBIT / Interest
= 77500000 / 15000000 (existing) + 40000000 * 0.07 (new)
= 77500000 / 15000000 + 2800000
= 77500000 / 17800000
= 4.35 times
Answer : times-interest-earned ratio 4.35 times
Answer No. 4
Times Burden Covered ratio = EBIT/ Interest + [principal payment x (1 – tax rate)]
= 77500000 / 15000000 + 2800000 + [(14000000 + 8000000) * ( 1 – 0.36)]
= 77500000 / 17800000 + 14080000
=77500000 / 17800000 + 14080000
= 77500000 / 31880000
= 2.43 times
Answer : Times Burden Covered ratio is 2.43 times
Answer No. 5
Figures in $
Particulars
Amount
Expected net income before interest and tax next year
a
77500000
Interest due next year (Existing + New)
b
17800000
(15000000+2800000)
Expected net income after interest and before tax next year (a-b)
c
59700000
Tax rate (59700000*0.36)
d
21492000
Expected net income after interest and tax next year (c-d)
e
38208000
Existing common shares
f
18000000
Earning per share (e/f)
g
2.12
Figures in $
Particulars
Amount
Expected net income after tax next year
a
40000000
1 - company tax rate
b
0.64
Expected net income before tax next year (a/b)
c
62500000
Interest due next year
d
15000000
Expected net income before interest and tax next year (c+d)
77500000
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