Fessenden Corporation has accumulated a significant amount of debt as a result of debt-financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessendens existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.90:1. The acquisition of Sonar will cost $86 million. Fessendens current level of equity is $490 million and its current level of interest-bearing debt is $621 million. Fessenden has a cash balance of $82 million. It will finance the acquisition with a 10-year bond of $86 million that carries a 5% interest rate sold at par.

Determine Fessendens 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. 1.25.)

Debt to Equity		:1
Net Debt as a Percentage of Total Capitalization		:1

Determine whether Fessenden could acquire Sonar Corporation with the bond issue and still remain in compliance with the existing debt covenants. (Round answers to 2 decimal places, e.g. 1.25.)

Debt to Equity		:1
Net Debt as a Percentage of Total Capitalization		:1