5. More on debt management ratios The extent of financial leverage in a firm Debt ratios measure the proportion of total assets financed by a firm's creditors. Mitata Co. has a debt-to-equity ratio of 1.60, compared to the industry average of 1.28. Its competitor Burlingame Co., however, has a debt-to-equity ratio of 2.40. Based on what debt-to-equity ratios imply, which of the following statements is true? Mitata Cos shareholders expect magnified returns but higher risk as compared to Burlingame Co. Burlingame Co. has greater financial risk as compared to Mitata Co. and to the average financial risk in the industry. Burlingame Co.'s creditors face lesser risk than the average financial risk in the industry. Burlingame Co. has higher creditworthiness as compared to Mitata Co. Suppose the stock price of Mitata Co. falis by 10%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance Sheet? The market debt ratio will increase, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company. The market debt ratio will increase, reflecting a decrease in the financial risk of the company. Data Collected (Millions of dollars) Year 1 EBITDA $150 Interest on debt is a tax deductible expense, which means that it can reduce a firm's taxable income and tax obligation Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11.25 million (including depreciation and amortization). On its current balance sheet and income statement, respectively, it reported total debt of $2.5 million, on which it pays 7% interest on its outstanding debt. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding Information, what are the values for Red Snail Satellite's debt management ratios? (Note: Do not round intermediate calculations.) Ratio Value 35.00% Times-interest-earned ratio 28.00% Red Snail Satellite Company rais 45.50% from creditors for each dollar of equity. Influenced by a firm's ability to with debit ratios 35.00% st payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies 80.5096 Grade It Now Save & Continue : : 11 il 5 6 W T Interest on debt can be deducted from pre-tax income, resulting in a greater taxable income and a smaller available operating income. Interest on debt is a tax deductible expense, which means that it can reduce a firm's taxable income and tax obligation Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11.25 million (including depreciation and amortization). On its current balance sheet and income statement, respectively, it reported total debt of $2.5 million, on which it pays 7% interest on its outstanding debt. To analyze a company's financial 39.28% tuation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail debt management ratios? (Note: Do not round intermediate calculations) 78.57% 58.93x Ratio Debt ratio 141.43x Times-interest-eared ratio 141.43x Red Snail Satellite Company raises around from creditors for each dollar of equity. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with debt ratios Grade It Now Save & Continue Cantina sinn ble operating income. is a tax deductible expense, which means that it can reduce a firm's taxable income and tax obligation Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11.25 million (Including depreciation and amortization). On its current balance sheet and income statement, respectively, it reported total debt of $2.5 million, on which it pays 7% Interest on its outstanding debt. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail Satellite's debt management ratios? (Note: Do not round intermediate calculations.) 35.00 Ratio 0.76 Debt ratio Times-interest-earned ratio Value 35.00% 0.65 141.43x 0.54 Red Snail Satellite Company raises around from creditors for each dollar of equity. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with debt ratios. Grade it Now Save & Continue Cantin e 2 3 To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail Satellite's debt management ratios? (Note: Do not round intermediate calculations.) Value Ratio Debt ratio 35.00% Times-interest-earned ratio 141.43x Red Slow fellite Company ralses around from creditors for each dollar of equity. high Influe a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies debt ratios. with Grade It Now Save & Continue Canne wiedesavina $ 3 E R T