The

Karson TransportKarson$$Transport

Company currently has net operating income of

$$$$500$ comma $000500,000$

and pays interest expense of

$$$$200$ comma $000200,000.$

The company plans to borrow

$$$$1\mathrm{.}001\mathrm{.}00$

million on which the firm will pay

$1010$

percent interest. The borrowed money will be used to finance an investment that is expected to increase the$$ firm's net operating income by

$ $400$ comma $000$$$400,000$

a year.

a$.$ What is

KarsonKarson$\text{'}$s

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?