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Mgmt 200 Assignment Soln 4-4-11

Mgmt 200 Assignment Soln 4-4-11 - Net Income Interest Taxes...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for April 4, 2011 Exercise 9-17 Requirement 1 ($ in thousands) Total Liabilities ÷ Stockholders’ Equity = Debt to Equity Ratio Expedia $3,254,475 ÷ $2,682,681 = 1.21 Priceline $476,610 ÷ $1,357,614 = 0.35 Expedia has a higher debt to equity ratio than Priceline. The soft drink industry represented by Coca-Cola and Pepsi has a higher average debt to equity ratio than the travel industry represented by Expedia and Priceline. Requirement 2 ($ in thousands)
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Unformatted text preview: Net Income + Interest + Taxes ÷ Interest = Times Interest Earned Ratio Expedia $538,159 ÷ $84,233 = 6.4 Priceline $560,724 ÷ $24,084 = 23.3 Priceline, with a times interest earned ratio of 23.3, is better able to meet interest payments as they become due than Expedia with a ratio of only 6.4. The soft drink industry represented by Coca-Cola and Pepsi have a times interest earned ratio similar to Priceline and far stronger than Expedia. Overall, the soft drink industry seems to have a slightly better times interest earned ratio....
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