Problem 15 in Chapter 3 asks you to construct a five-year financial projection for Aquatic Supplies beginning in 2022. Based on your forecast or the suggested answer available through McGraw-Hill’s Connect, answer the following questions.

a. Calculate the company’s times-interest-earned ratio for each year from 2021 to 2026.

b. Calculate the percentage EBIT can fall before interest coverage dips below 1.0 for each year from 2021 to 2026.

c. Consulting Table 6.5 in the text, what bond rating would Aquatic Supplies have in 2021 if the rating was based solely on the firm’s interest coverage ratio?

d. Based on this rating, would a significant increase in financial leverage be a prudent strategy for Aquatic Supplies?

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