Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jacob Joseph has identified five different companies in which he is interested in investing, based upon their products and prospects. However, Jacob is concerned about

Jacob Joseph has identified five different companies in which he is interested in investing, based upon their products and prospects. However, Jacob is concerned about a general economic downturn and desires to invest in companies with the lowest debt exposure. Following is a list of the data for the five potential investments. Jacob has compiled the data and has ranked the companies based upon total debt. He has requested your help in evaluating the risk profiles for each company.

To complete your evaluation, you need to know that each company faces an income tax rate that is equivalent to 30% of income before taxes (which also means that net income is 70% of income before taxes). In addition, assume that each company incurs an average interest cost that is 8% of total debt.

Total Assets

Total Debt

Net Income

$ 10,000,000

$ 1,000,000

$ 200,000

20,000,000

3,000,000

1,000,000

6,000,000

4,000,000

250,000

15,000,000

6,000,000

1,600,000

30,000,000

22,000,000

4,000,000

Calculate the times interest earned ratio, and reorder the list from least risky to most risky, based upon that ratio.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Beyond Audit Auditing Remotely And Delivering Value

Authors: Robert L. Mainardi

1st Edition

1119789605, 978-1119789604

More Books

Students also viewed these Accounting questions

Question

List the components of the strategic management process. page 72

Answered: 1 week ago