Hackworth Co. has a debt-to-equity ratio of 3.40, compared to the industry average of 4.08. Its competitor Markums Co., however, has a debt-to-equity ratio of 2.72. Based on what debt-to-equity ratios imply, which of the following statements is true?

A. Hackworth Co. has greater financial risk as compared to Markums Co. but lower than the average financial risk in the industry.

B. Markums Co. has a greater risk of bankruptcy than Hackworth Co.

C. Markums Co.s creditors face higher risk than the average financial risk in the industry.

D. Hackworth Co. has higher creditworthiness as compared to Markums Co.

Suppose the stock price of Hackworth Co. falls by 10%. What impact will it have on its market-to-debt ratioif nothing changes in the companys balance sheet?

A. The market debt ratio will increase, reflecting a decrease in the financial risk of the company.

B. The market debt ratio will decrease, reflecting an increase in the financial risk of the company.

C. The market debt ratio will increase, reflecting an increase in the financial risk of the company.

D. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company.

Data Collected (Millions of dollars)

	Year 1
EBITDA	$150
Interest payments	$15
Principal payments	$12
Lease payments	$7

Based on the information, Hackworth Co. has the ability to cover its fixed financial charges ____ times.

A. 4.62

B. 5.81

C. 4.41

D. 7.14