Tandon Corporation has a target capital structure of 30% debt, 70% equity. It also has a policy of never having a TIE ratio below 6. Currently, its capital structure consists of Tk 8,00,000 in Equity and Tk 3,00,000 in debt. Currently, the rate on this debt is 11% annually. The expected retained earnings for this year (not included in the above equity figure) is Tk 1,00,000. Tandon will need to raise an additional Tk 3,00,000 in new capital.

• What is the available debt capacity of Tandon using the debt ratio test? (4 points)
• Assuming 13% interest cost on new debt, what is the available debt capacity using TIE Test? Expected EBIT is Tk 3,00,000. (4 points)

• How much new debt can Tandon add and still stay within the policy limits of its capital structure and TIE ratio? (2 points)