Mike Smith, CFA, an analyst with Blue River Investments, is considering buying a Montrose Cable Company corporate bond. He has collected the balance sheet and income statement information for Montrose as shown in Table 1 below.

He has also calculated the three ratios shown in Table 2 below, which indicate that the bond is currently rated "A" according to the firm's internal bond-rating criteria.

Specifically, Smith wishes to evaluate the impact of each of the off-balance-sheet items on each of the ratios found in Table 2. Assume that the "loan proceeds" from the financed receivables would be invested at interest rate of 8 percent.

A. Calculate the combined effect of the three off-balance-sheet items in Table 3 on each of the following three financial ratios shown in Table 2. Do not round intermediate calculations. Round your answers to four decimal places.

EBITDA/interest expense:

Long-term debt/equity:

Current assets/current liabilities:

B. Evaluate whether or not the credit yield premium incorporates the effect of the off-balance-sheet items, state and justify whether or not the current credit yield premium compensates Smith for the credit risk of the bond, based on the internal bond-rating criteria found in the firm's internal bond-rating criteria. Round your answers to the nearest whole number.

(For Bond Rating select between AA, A, BB, or B)

The current rating of the Montrose bond as an "A" -Select- does not incorporate / incorporate the effect of the off-balance-sheet items, and the current credit yield premium of 56 basis points -Select-is / is not sufficient to compensate Smith for the credit risk of the bond.

Table 1 Montrose Cable Company Year Ended March 31, 2017 (USD Thousands) Balance Sheet Current assets Fixed assets Total assets Current liabilities Long-term debt Total liabilities Shareholders' equity Total liabilities and shareholders' equity $4,76043,220$47,9804,43010,000$14,43033,550$47,980 Income Statement Revenue Operating and administrative expenses Operating income Depreciation and amortization Interest expense Income before income taxes Taxes Net income $18,51014,030$4,4801,700945$1,835691$1,144 Smith has decided to consider some off-balance-sheet items in his credit analysis, as shown in Table 3. Table 3 Montrose Off-Balance-Sheet Items - Montrose has guaranteed the long-term debt (principal only) of an unconsolidated affiliate. This obligation has a present value of $995,000. - Montrose has sold $525,000 of accounts receivable with recourse at a yield of 8 percent. - Montrose is a lessee in a new noncancelable operating leasing agreement to finance transmission equipment. The discounted present value of the lease payments is $6,142,000 using an interest rate of 10 percent. The annual payment will be $1,000,000. Credit Yield Premium over U.S. Treasuries Bond Rating (in basis points)