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MyFinanceLab Ch. 15

MyFinanceLab Ch. 15 - o $521,000 x 5.3 • Times interest...

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MyFinanceLab: Ch. 15 Debt ratio: o BV of TL/ BV of TA Interest bearing debt ratio: o Short and long term debt/ BV of TA Debt to value ratio: o BV of int. bearing debt/ (BV of debt + MV of equity) o Best to use for investor If firm wants to have debt ratio of 50% how much equity does firm need to raise to finance expansion? o 50% = (Current TL + (add’l expansion $ - x))/ (Current TA + add’l expansion $) o Solve for x NI = (EBIT – int. exp.) x (1-T) If firm issues debt of $521,000 w/ 5.3% interest, what is annual interest expense?
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Unformatted text preview: o $521,000 x 5.3% • Times interest earned: o EBIT or operating income/ int. exp. o If sales increases by 20% so do variable costs, CGS • Find indifference level (on the EBIT – EPS) chart: o At EBIT in excess of indifference level, plan w/ more leverage will generate higher EPS o At EBIT below indifference level, plan w/ less leverage will generate higher EPS...
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