If the company wants a Times Interest Earned Ratio in 2002 of exactly 4 it could either (a) change its level of Debt thereby altering Interest; (b) change its Cost of Goods Sold altering its EBIT; or (c) change its level of Sales also altering its EBIT.

1. 1. By how much would it have to change its debt to achieve a TIE of 4 assuming that Notes Payable and Long-term debt are the only interest bearing instruments?
2. 2. By how much would sales have to change to achieve a TIE of 4 assuming that Cost of Goods Sold and General, Selling and Administrative Expenses change proportionally?

Halo Project BALANCE SHEET Assets 2000 Cash Accounts Receivable Inventory Total Current Assets 2001 2002 20,000 30,000 40,000 60,000 70,000 90,000 130,000 180,000 Net Fixed Assets 530,000 710,000 Total Assets 660,000 890,000 2000 Liabilities and Equity Accounts Payable Notes Payable Accruals Total Current Liabilities Long-term Debt Total Liabilities 2001 2002 80,000 60,000 20,000 50,000 30,000 60,000 130,000 170,000 170,000 170,000 300,000 340,000 Common Stock Retained Earnings Total Equity 260,000 450,000 100,000 100,000 100,000 360,000 550,000 Total Liabilities and Equity 660,000 890,000 INCOME STATEMENT 2000 Sales less: Cost of Sales less: General, selling and administrative expenses EBITDA less: Depreciation EBIT less: Interest EBT less: Taxes @ 40% Net Income 2001 2002 350,000 450,000 -140,000 -135,000 -35,000 -45,000 175,000 270,000 -95,000 -170,000 80,000 100,000 20,000 30,000 60,000 70,000 -24,000 -28,000 36,000 42,000