In 2004, Natural Selection, a nationwide computer dating service, had $250 million of assets and $100 million of liabilities. Earnings be- fore interest and taxes were $60 million, interest expense was $14 mil- lion, the tax rate was 40 percent, principal repayment requirements were $12 million, and annual dividends were 30 cents per share on 10 million shares outstanding.

a. Calculate 1. Natural Selection's liabilities-to-equity ratio. 2. Times interest earned ratio. 3. Times burden covered.

b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover 1. Interest payment requirements? 2. Principal and interest requirements? 3. Principal, interest, and common dividend payments?

AppendixLO1