WEEK THREE

(Financing decisions) Emma's Electronics Incorporated has total assets of $65million and total debt of $37 million. The company also has operating profits of $23 million with interest expenses of $44 million.

a. What is Emma's debt ratio?

b. What is Emma's times interest earned?

c. Based on the information above, would you recommend to Emma's management that the firm is in a strong enough position to assume more debt and increase interest expense to $99 million?

a. Emma's debt ratio is %. (Round to two decimal places.) Answer:

b. Emma's times interest earned ratio is (Round to two decimal places.) Answer:

c. Based on the information above, would you recommend to Emma's management that the firm is in a strong enough position to assume more debt and increase interest expense by $99 million? (Select the best choice below.)

A.

No. Emma should not take on more debt because of high debt ratio and low times interest earned ratio.No. Emma should not take on more debt because of high debt ratio and low times interest earned ratio.

B.

Yes. Emma can take on more debt because of low debt ratio and high times interest earned ratio.Yes. Emma can take on more debt because of low debt ratio and high times interest earned ratio.

PLEASE ANSWER THIS QUESTION CORRECTLY AND FULLY!!!