Question
The management of National Utility Company has applied for a $550,000 commercial loan to purchase additional leased vehicles for its expanding business. The commercial loan
The management of National Utility Company has applied for a $550,000 commercial loan to purchase additional leased vehicles for its expanding business. The commercial loan office has requested and received the following itemized financial information to perform the due diligence:
The company generates Earnings Before Interest, Taxes, Depreciation & Amortization of $750,700
The company pays $85,000 in taxes for the current year
The company pays annual interest expense of $95,000 on its loans
The company spends $10,000 annually to replace some of its Property, Plants, and Equipments
The company pays annual lease principal payments of $110,000
The company pays monthly lease payments of $3,000 for its fleet of vehicle
a. Please calculate the Fixed-Charged Coverage (show your work for full points) (35%)
b. Should the loan officer approve the loan request? Please explain (15%)
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Intermediate Accounting
Authors: J. David Spiceland, James Sepe, Mark Nelson
6th edition
978-0077328894, 71313974, 9780077395810, 77328892, 9780071313971, 77395816, 978-0077400163
