In 2016, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million

Question:

In 2016, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million of liabilities. Earnings before interest and taxes were $120 million, interest expense was $28 million, the tax rate was 40 percent, principal repayment requirements were $24 million, and annual dividends were 30 cents per share on 20 million shares outstanding.

a. Calculate the following for Natural Selection:

i. Liabilities-to-equity ratio
ii. Times-interest-earned ratio
iii. Times burden covered

b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover:

i. Interest payment requirements?
ii. Principal and interest requirements?
iii. Principal, interest, and common dividend payments?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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