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The Karson TransportKarson Transport Company currently has net operating income of $ 5 0 0 comma 0 0 0 5 0 0 , 0 0
The
Karson TransportKarsonTransport
Company currently has net operating income of
$ comma
and pays interest expense of
$ comma
The company plans to borrow
$
million on which the firm will pay
percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm's net operating income by
$ comma $
a year.
a What is
KarsonKarsons
times interest earned ratio before the loan is taken out and the investment is made?
b What effect will the loan and the investment have on the firm's times interest earned ratio?
c If the firm's estimates of the effect of the new investment work out as planned, do the changes have a positive effect on the firm's financial condition?
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