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The following income statement (in millions) is adapted from the 2004 10-K filing of Time Warner:
Revenues
$42,089
Cost of revenues
24,449
Gross profit
$17,640
Selling, administrative, and other expenses
10,300
Amortization of goodwill and other intangible assets
626
Other costs and expenses
549
Operating income
$ 6,165
Interest expense
1,754
Other nonrecurring income
651
Income before taxes
$ 5,062
Income tax expense
1,698
Net income
$ 3,364
Included in the preceding income statement is depreciation of property, plant, and equipment of $6,132.
1. Compute the EBITDA for 2004.
2. Compute the percentage of EBITDA to total revenues for 2004. Round to one decimal place after converting to a percentage.
3. Compute the ratio of EBITDA to interest expense for 2004. Round to one decimal place.
4. Compute the ratio of long-term debt to EBITDA for 2004. The long-term debt as of December 31, 2004, was $20,703. Round to one decimal place.
5. Comment on the ability of Time Warner to meet its interest obligations.
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