Question: Your supervisor is considering purchasing the bonds and preferred shares of ARC Corp. She fur- PROBLEM 1010 nishes you the following ARC income statement and

Your supervisor is considering purchasing the bonds and preferred shares of ARC Corp. She fur- PROBLEM 10–10 nishes you the following ARC income statement and expresses concern about the coverage of fixed charges.

Required:

a. Compute the following earnings coverage ratios:
(1) Earnings to fixed charges. (3) Earnings coverage of preferred dividends.
(2) Cash flow to fixed charges.

b. Analyze and interpret the earnings coverage ratios in (a).

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