Question
(Capital structure analysis)The Karson Transport Company currently has net operating income of $509,000 and pays interest expense of $209,000. The company plans to borrow $1.12
(Capital structure analysis)The Karson Transport Company currently has net operating income of $509,000 and pays interest expense of $209,000. The company plans to borrow $1.12 million on which the firm will pay 11 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm's net operating income by $401,000 a year.
a. What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
b. What effect will the loan and the investment have on the firm's times interest earned ratio?
Part 1
a.What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
The times interest earned ratio is 2.44 times. (Round to two decimal places.)
Part 2
b.What effect will the loan and the investment have on the firm's times interest earned ratio?
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Finance And Economics Discussion Series Measurement Error And Time Aggregation A Closer Look At Estimates Of Output Labor Elasticities
Authors: United States Federal Reserve Board, Marcello Estevao
1st Edition
1288722990, 9781288722990
