Margaret O'Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in 10 years. She asks you to analyze the company to Analyzing ratios determine the riskiness of the bonds.

Required:
1. Using the data provided in the accompanying financial statement, calculate the following ratios for Alpine Chemical for 2008:

a. EBIT/Interest expense

b. Long-term debt/Total capitalization

c. Funds from operations/Total debt

d. Operating income/Sales Use the following conventions: EBIT is earnings before interest and taxes; Total capitalization is interest-bearing long-term debt plus net worth; Funds from operations means net income plus depreciation expense; and Total debt includes interest-bearing short-term and long-term debt.
2. Briefly explain the significance of each ratio calculated in requirement | to the assessment of Alpine Chemical’s creditworthiness.
3. Insert your answers to requirement | into Table 1 that follows. Then from Table 2 on the next page, select an appropriate credit rating for Alpine Chemical.

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Alpine Chemical Company Financial Statements ($ in millions) Years Ended December 31 2003 2004 2005 2006 2007 2008 Assets Cash $ 190 $ 55 $ 0 $ 157 $ 249 $ 0 Accounts receivable 1,637 2,087 1,394 2,143 3,493 3,451 Inventories 2,021 945 1,258 1,293 1,322 1,643 Other current assets 17 27 55 393. 33 171 Current assets 3,865 3,114 2,707 3,986 5,097 5,265 Gross fixed assets 4,650 5,038 5,619 5,757 6,181 7,187 Less: Accumulated depreciation 2,177 2,543 2,841 3,138 3,465 3,893 Net fixed assets 2,473 2,495 2,778 2,619 2,716 3,294 Total assets $ 6,338 $ 5,609 $ 5,485 $ 6,605 $ 7,813 $ 8,559 Liabilities and net worth Notes payable $ 525 $ 750 $ 0 $1,300 $ 1,750 $ 1,900 Accounts payable 673 638 681 338 743 978 Accrued liabilities 303 172 359 359 483 761 Current liabilities 1,501 1,560 1,040 1,997 2,976 3,639