uestion 4 ABC has recently released its end of year financial statements. Earnings before interest and taxes (: by 10% over the year to $1.5 billion. The firm has a face value of debt of $5 billion with the average maturity of years. Over the full year, the firm has incurred an interest expense of some $400 million on this debt. The table below summarizes the relationship between interest coverage ratios, credit ratings and associated credit spreads over government bonds for large U.S. firms BIT) have grown Rating Credit Spread nterest Coverage Ratio > 12.5 9.50 - 12.50 7.50-9.50 6.00 7.50 4.50 6.00 3.50- 4.50 3.00 3.50 2.50 3.00 2.00 2.50 1.50- 2.00 1.25 1.50 0.20% 0.50% 0.80% l.00% 1.25% 1.50% 2.50% 3.00% 3.75% 4.75% 6.00% A+ Estimate a synthetic rating for ABC debt based on the company's interest coverage ratio. (5) Calculate the required rate of return on ABC's debt assuming 8-year Government Bonds (Treasuries) are trading at a yield to maturity of 5%. (5) Estimate the market value of ABC's debt. (10) a. b. c