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What is the interest coverage ratio of each firm

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Reference no: EM13343769

1.Suppose a firm’s tax rate is 35%.

a. What effect would a $10 million operating expense have on this year’s earnings? What effect would it have on next year’s earnings?

b. What effect would a $10 million capital expense have on this year’s earnings if the capital is depreciated at a rate of $2 million per year for five years? What effect would it have on next year’s earnings?

2.You are analyzing the leverage of two firms and you note the following (all values in millions of dollars):

 

 

1530_values in million.png

a. What is the market debt-to-equity ratio of each firm?

b. What is the book debt-to-equity ratio of each firm?

c. What is the interest coverage ratio of each firm?

d. Which firm may have more difficulty meeting its debt obligations? Explain

Reference no: EM13343769

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