Problem $6-7$

As the chief financial officer of Adirondack Designs, you have the following information:

Next year's expected net income after tax but before new financing

Sinking$-$fund payments due next year on the existing debt

Interest due next year on the existing debt

Common stock price, per share

Common shares outstanding

Company tax rate

$$36$ million

$$11$ million

$$6$ million

$$26\mathrm{.}0$

$16$ million

$40\%$

a$.$ Calculate Adirondack's times$-$interest$-$earned ratio for next year assuming the firm raises $$46$ million of new debt at an interest rate

of $3$ percent.

b$.$ Calculate Adirondack's times$-$burden$-$covered ratio for next year assuming annual sinking$-$fund payments on the new debt will equal

$$2\mathrm{.}5$ million.

c$.$ Calculate next year's earnings per share assuming Adirondack raises the $$46$ million of new debt.

d$.$ Calculate next year's times$-$interest$-$earned ratio, times$-$burden$-$covered ratio, and earnings per share if Adirondack sells $1\mathrm{.}1$ million

new shares at $$21$ a share instead of raising new debt.

Note: Do not round intermediate calculations. Round "Earnings per share" answers to $2$ decimal places and other answers to $1$

decimal place.As the chief financial officer of Adirondack Designs, you have the following information:

Next year$$s expected net income after tax but before new financing$ $36$millionSinking$-$fund payments due next year on the existing debt$ $11$millionInterest due next year on the existing debt$ $6$millionCommon stock price, per share$ $26\mathrm{.}0$ Common shares outstanding$16$millionCompany tax rate$40\%$

a$.$ Calculate Adirondack$$s times$-$interest$-$earned ratio for next year assuming the firm raises $$46$ million of new debt at an interest rate of $3$ percent.

b$.$ Calculate Adirondack$$s times$-$burden$-$covered ratio for next year assuming annual sinking$-$fund payments on the new debt will equal $$2\mathrm{.}5$ million.

c$.$ Calculate next year$$s earnings per share assuming Adirondack raises the $$46$ million of new debt.

d$.$ Calculate next year$$s times$-$interest$-$earned ratio, times$-$burden$-$covered ratio, and earnings per share if Adirondack sells $1\mathrm{.}1$ million new shares at $$21$ a share instead of raising new debt.

Note: Do not round intermediate calculations. Round "Earnings per share" answers to $2$ decimal places and other answers to $1$ decimal place.

a$.$ Times interest earned b$.$ Times burden covered c$.$ Earnings per share d$.$ Times interest earned d$.$ Times burden covered d$.$ earnings per share