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# Compute and Interpret Liquidity, Solvency and Coverage RatiosSelected balance sheet and income statement

information for Calpine Corporation for 2004 and 2006 follows.

(\$ millions) 2004 2006

Cash \$ 1,576.73 \$ 1,543.36

Accounts receivable 1,097.16 735.30

Current assets 3,238.56 3,443.33

Current liabilities 3,285.39 6,057.95

Long-term debt 16,790.81 3,291.63

Short-term debt 1,033.96 4,568.83

Total liabilities 22,628.42 25,623.17

Interest expense 1,516.90 1,288.29

Capital expenditures 1,845.48 211.50

Equity 4,587.67 (7,152.90)

Cash from operations 20.89 165.98

Earnings before interest and taxes 1,589.84 1,937.84

(a) Compute the following liquidity, solvency and coverage ratios for both years. (Round your answers to two decimal places.)

2006 times interest earned = Answer

2004 times interest earned = Answer

2006 cash from operations to total debt = Answer

2004 cash from operations to total debt = Answer

2006 free operating cash flow to total debt = Answer

2004 free operating cash flow to total debt = Answer

(b) Which of the following best describes the company's credit risk?

Both the quick ratio and current ratio for 2006 are lower than 1.0 and have increased in the past two years. Along with interest coverage ratios that are exceedingly high, the probability that the company will face default has significantly increased.

Both the quick ratio and current ratio for 2006 are above 1.0 and have decreased in the past two years. Along with interest coverage ratios that are exceedingly low, the probability that the company will face default has significantly decreased.

Both the quick ratio and current ratio for 2006 are above 1.0 and have increased in the past two years. Along with interest coverage ratios that are exceedingly high, the probability that the company will face default has significantly decreased.

Both the quick ratio and current ratio for 2006 are lower than 1.0 and have decreased in the past two years. Along with interest coverage ratios that are exceedingly low, the probability that the company will face default has significantly increased.

a) 2006 current ratio = 0.57 2004 current ratio = 0.99 2006 quick ratio = 0.38 2004 quick ratio = 0.81 2006... View the full answer ### Why Join Course Hero?

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