Hewlett-Packard Co. Balance Sheet (October 21, 2007) Financial Structure In Thousands of Dollars Liabilities Current Liabilities Accounts Pavable $25,822,000 $3,186,000 $10,252,000 39,260,000 $4,997,000 $5,916,000 $%10.913.000 38,526,000 $88.699.000 Short-term/current debt Other current liabilities Total Current Liabilities Long-term debt Other long-term liabilities Long-term liabilities Shareholder equity Total Income Statements (thousands) 31-Oct-07 9,466,000 31-Oct-06 7,440,000 31-Oct-05 3,759,000 Period Endin Earnings before Interest and taxes Interest Expense Income before Tax Income Tax Expense Net Income 289,000 9.177.000 (1.913.000 7.264.000 (249.000 7,191,000 (993.000 6,198,000 216,000 3,543,000 (1,145,000) 2.398.000 Describe the capital structure of Hewlett-Packard using both the debt ratio and the interest-bearing debt ratio. a) b) What is Hewlett-Packard's times interest earned ratio? If HP faces a principal payment equal to $3 billion, what is the firm's EBITDA coverage ratio for 2007? (Hint: HP's tax rate is 20%) c) Suppose Apple has decided to issue debt financing and use the proceeds to purchase some of its shares of stock from the open market. What fraction of the firm's 2.47 billion shares does the firm need to repurchase so as to make its interest-bearing debt ratio equal to that of Hewlett-Packard? If Apple had carried out the transaction by issuing bonds with an 8% rate of interest, what would its earnings per share have been in 2007? d) Do you think that the proposed change of capital structure makes good financial sense? Why or why not?