question 1

Part 2

Fessenden Corporation has accumulated a significant amount of debt as a result of debt-financed accuisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessenden's existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.90:1. The acquisition of Sonar will cost $76 million. Fessenden's current level of equity is $440 million and its current level of interest-bearing debt is $556 million. Fessenden has a cash balance of $72 million. it will finance the acquisition with a 10 year bond of $76 million that carries a 5% interest rate sold at par. Part 1 Determine fessenderis debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition. (Round answers to 2 decimal places, e.g. 1.25.) Debt to Equity 11 Net Debt as a Percentage of Total Capitalization :1 Determine whether Fessenden could acquire Sonar Corporation with the bond issue and still remain in compliance with the existing debt covenants. (Round answers to 2 decimal places, eg. 1.25.) Debt to Equity Net Debt as a Percentage of Total Capitalization :1 Fessenden acquire Sonar Corporation