The American Can Bean Company has a current capital structure of $500,000 in debt and $1,000,000 in equity. There is one shareholder (Rose Bud) who would like to have the company pay her a $250,000 dividend and borrow $ 250,000. The CFO (Ben Dover) spoke with the banker (Mr Drysdale). He said yes but the leverage ratio can't exceed one and the debt coverage ratio must be 1.20 or better at an interest rate of 6% and annual principal payments of $25,000 . You are in finance at the company and the CFO asked you to prepare a schedule in Excel to determine if they can borrow the money. Draw a conclusion if it is possible.

Assume no change net operating income of $50,000, existing interest expense of $25,000, taxes of $12,500 and depreciation and amortization of $40,000. The companies tax rate is 20%.

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