Sandhill Corporation has accumulated a significant amount of debt as a result of the recent launch of a constellation of satellites. It is

currently considering acquiring and launching its largest state$-$of$-$the$-$art observation satellite, SkyEye. Sandhill's existing debt

covenants stipulate that it cannot go beyond a debt$-$to$-$equity ratio of $1\mathrm{.}59$:$1$ and a net debt as a percentage of capitalization ratio of

$0\mathrm{.}89$:$1.$ The acquisition of SkyEye will cost $$250$ million. Sandhill's current level of equity is $$540$ million, and its current level of

interest$-$bearing debt is $$841\mathrm{.}0$ million. Sandhill has a cash balance of $$85$ million. It will finance the acquisition with a $15-$year bond of

$$215$ million that carries a $7\%$ interest rate sold at par.

$($a$)$

Your answer is incorrect.

Determine Sandhill's 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$.1\mathrm{.}25$:$1.)$

Debt to equity

Net debt as a percentage of total capitalization

eTextbook and Media

$($b$)$

Determine whether Sandhill could acquire SkyEye with the bond issue and remain in compliance with the existing debt covenants.

$($Round answers to $2$ decimal places, e$.$g$.1\mathrm{.}25$:$1.)$

Debt to equity

Net debt as a percentage of total capitalization