Hartman Industries recently reported $512,500 of sales, $358,750 of operating costs other than depreciation, and $14,034 of depreciation. The company had no amortization charges, its interest expense was $16,472, and its federal-plus-state income tax rate was 25%. To sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $25,344 of capital expenditures on new fixed assets and to invest $7,410 in net operating working capital. What is the firms free cash flow?

a. $ 79,443

b. $ 86,067

c. $ 97,377

d. $104,787

e. $118,821

Max. debt ratio for a given TIE ratio

7. Henebry Inc. is developing its business plan. It will require $1,814,816 of assets, and it projects $175,000 of sales and $113,750 of operating costs (including depreciation) for the first year. The firm is quite sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 6%, but the bank requires it to have a TIE of at least 2.25, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio (Total debt/Total assets) the firm can use? (Note: You may want to refer to the Summary of Ratios worksheet in Module 1 on the courses canvas website.)

a. 25.00%

b. 33.33%

c. 35.00%

d. 37.50%

e. 40.00%