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Determine the interest coverage ratio after issuance of bond

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Reference no: EM133161322

Question - A manufacturing concern in the previous year, the company has reported decline in earnings before interest and tax (EBIT) from $50 million $ 10 million. Company is planning to issue bonds on the stock market as an alternative to overdraft facility of $ 45million that is expected to reduce by $5,000,000 within 3 months' time. The bond would be issue at nominal value of $ 100 per bond at an interest rate of 9% per annum payable at end of the year. The bond will be redeemable at a rate of 10% premium to their nominal value after 10 years the applicable tax rate would be 29% and the current interest on the overdraft is 5% per annum. Determine the interest coverage ratio after issuance of bonds?

Reference no: EM133161322

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