Blossom Corporation has accumulated a significant amount of debt as a result of the recent launch of a constellation of satellites. It is

currently considering acquiring and launching its largest state$-$of$-$the$-$art observation satellite, SkyEye. Blossom's existing debt

covenants stipulate that it cannot go beyond a debt$-$to$-$equity ratio of $1\mathrm{.}72$:$1$ and a net debt as a percentage of capitalization ratio of

$0\mathrm{.}92$:$1.$ The acquisition of SkyEye will cost $$315$ million. Blossom's current level of equity is $$570$ million, and its current level of

interest$-$bearing debt is $$1,064\mathrm{.}7$ million. Blossom has a cash balance of $$90$ million. It will finance the acquisition with a $15-$year bond

of $$305$ million that carries a $7\%$ interest rate sold at par.

$($a$)$

Your answer is partially correct.

Determine Blossom's debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition.

$($Round answers to $2$ decimal places, e$.$g$.1\mathrm{.}25$:$1.)$

Debt to equity

Net debt as a percentage of total capitalization

:$1$

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Question Part Score

$($b$)$

Your answer is partially correct.

Determine whether Blossom could acquire SkyEye with the bond issue and remain in compliance with the existing debt

covenants. $($Round answers to $2$ decimal places, e$.$g$.1\mathrm{.}25$:$1.)$

Debt to equity