In 2013, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million of liabilities. Earnings before interest and taxes were $120 million, interest expense was $28 million, the tax rate was 40%, principal repayment requirements were $24 million, and annual dividends were 30 cents per share on 20 million shares outstanding.

a) Calculate the following for Natural Selection:

1) Liabilities-to-equity ratio

2) Times-interest-earned ratio

3) Times burden covered

b) What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover:

1) Interest payment requirements?

2) Principal and interest requirements?

3) Principal, interest, and common dividend payments?