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Please I need answer in Excel file with formula. a. What was the book value of Avons shareholders equity from 2001 to 2003? What were
Please I need answer in Excel file with formula.
a. | What was the book value of Avons shareholders equity from 2001 to 2003? What were Avons liabilities-to-assets and times-interest-earned ratios in these years? (Use Pretax Income plus Interest Expense as EBIT.) What do these figures suggest about Avons use of financial leverage? Consulting Table 6-5 in the text, what bond rating would Avon have in 2002 if the rating were based solely on the firms coverage ratio? |
b. | What percentage decline in EBIT could Avon have suffered in each year before Avon would have been unable to make its interest payments out of operating income? |
c. | Assuming a 35 percent corporate tax rate, and 2002 earnings before interest and taxes of $895 million, by how much did Avons $60 million interest expense reduce taxes? |
d. | Answer question (a) and (b) again for 2002 assuming the company had borrowed an additional $3 billion in debt at 8 percent interest at the start of the year and distributed the proceeds to shareholders as a special dividend. You may ignore the effect of added interest expense on Avons balance sheet. Might shareholders benefit from such an increase in financial leverage? Explain. |
e. | How would you assess Avons business risk? Setting aside the way the company is financed, how significant are the marketplace risks Avon faces; how uncertain are the companys future operating cash flows? What does your assessment of Avons business risk suggest about the level of financial leverage the company can prudently support? |
f. | How big a threat would it be to Avon if the company took on too much debt and had difficulty servicing it? How costly would financial distress be to Avon? Explain. |
g. | Based on your analysis and any other considerations you think relevant, is Avon heavily or modestly indebted? Should the company acquire more debt, or shed existing debt? Why? |
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