A firm has 2,000,000 shares of stock outstanding, total debt of $3,000,000 at an annual interest rate

of 8% and annual depreciation expense of $300,000, and is considering borrowing an additional

$6,000,000 at 8% and buying back one-half of those shares. Assuming EBIT of $1.2 million, what is this

companys cash coverage ratio (a) before and (b) after the proposed restructuring? What can you

conclude about the impact of financial leverage on a firms cash coverage ratio?