osv 5 = w. Week 10 Exercises (L8 Sem A 2020_21) 2771 AS Mac Ev # 6 # J X Garamond V 12 Ai po ab A. V V A XN AaBb CcDdE AaBbCcDdE AaBb AaBb AaBbCcD B I U vab X A X Av A 6 1 2 v 3. Orange Corporation is a medium-sized corporation engaging in hi-tech networking products and it wants to keep its capital structure in line with the Baa2 or BBB senior debt credit rating. Its Chief Finance Officer David Jones spotted 6 firms A, B, C, D, E & F in the same industry for comparison. The data he found are listed below: e Corporation A B2 CA D- E F- Senior debt rating Baa2/BBB Baa3/BBB-4 Baa2/BBB Baa1/A-Baa1/BBB-4 Baa2/BBB+ Return on asset 5.2% 5.0% 5.4% 5.7% 5.2% 5.3% Long term debt / 38% 41% 45% 40% 25% 43% Capitalization Total 425Mil 575Mil 525 Mil 650Mil 210Mil 375 Mil Capitalization Cash Flow/Long 39% 43% 28% 46% 57% 43% term debt Fixed Charge 2.572 2.83 2.75 2.382 3.59 2.152 Coverage Note : Fixed charge coverage is a ratio that shows a company's ability to satisfy fixed financing expenses like interest & leases. Page 1 of 24 Fixed Charge Coverage EBIT + Fixed Charge (before tax) Fixed Charge (before tax) + Interest a. b. If Orange's return on asset is 5.3% and it has a capitalization of $600 Mil, what may be the reasonable targets for long-term debt/capitalization, cash flow/long-term debt, and fixed-charge coverage Are there any firms among these six which are particularly good or bad comparables ? Comment on your answers. If the current ratio of long-term debt to total capitalization and fixed charge coverage for Orange are 60% and 3.00 respectively, what recommendation you would make to Orange ? Credit rating is the key determinant of a company's cost of capital. Comment on this statement. C. d. 1 * , #25 534 183 x X (6) 128% osv 5 = w. Week 10 Exercises (L8 Sem A 2020_21) 2771 AS Mac Ev # 6 # J X Garamond V 12 Ai po ab A. V V A XN AaBb CcDdE AaBbCcDdE AaBb AaBb AaBbCcD B I U vab X A X Av A 6 1 2 v 3. Orange Corporation is a medium-sized corporation engaging in hi-tech networking products and it wants to keep its capital structure in line with the Baa2 or BBB senior debt credit rating. Its Chief Finance Officer David Jones spotted 6 firms A, B, C, D, E & F in the same industry for comparison. The data he found are listed below: e Corporation A B2 CA D- E F- Senior debt rating Baa2/BBB Baa3/BBB-4 Baa2/BBB Baa1/A-Baa1/BBB-4 Baa2/BBB+ Return on asset 5.2% 5.0% 5.4% 5.7% 5.2% 5.3% Long term debt / 38% 41% 45% 40% 25% 43% Capitalization Total 425Mil 575Mil 525 Mil 650Mil 210Mil 375 Mil Capitalization Cash Flow/Long 39% 43% 28% 46% 57% 43% term debt Fixed Charge 2.572 2.83 2.75 2.382 3.59 2.152 Coverage Note : Fixed charge coverage is a ratio that shows a company's ability to satisfy fixed financing expenses like interest & leases. Page 1 of 24 Fixed Charge Coverage EBIT + Fixed Charge (before tax) Fixed Charge (before tax) + Interest a. b. If Orange's return on asset is 5.3% and it has a capitalization of $600 Mil, what may be the reasonable targets for long-term debt/capitalization, cash flow/long-term debt, and fixed-charge coverage Are there any firms among these six which are particularly good or bad comparables ? Comment on your answers. If the current ratio of long-term debt to total capitalization and fixed charge coverage for Orange are 60% and 3.00 respectively, what recommendation you would make to Orange ? Credit rating is the key determinant of a company's cost of capital. Comment on this statement. C. d. 1 * , #25 534 183 x X (6) 128%
