13. Problem 13, part

f. in Chapter 3 asks you to construct a five-year financial projection for Jasmine Apparel beginning in 2006. Based on your forecast, or the suggested answer in C3_Problem_13.xls, answer the questions below. The file is available at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.)

a. Calculate the company's annual times-interest-earned ratio over the forecast period.

b. Calculate the percentage EBIT can fall before interest coverage dips below 1.0 for each year in the forecast.

c. Consulting Table 6.5 in the text, what bond rating would Jasmine Apparel have in 2005 if the rating were based solely on the firm's interest coverage ratio?

d. Based on this rating, would a significant increase in financial lever- age be a prudent strategy for Jasmine Apparel?