A firm has 2,000,000 shares of stock outstanding, total debt of $3,000,000 at an annual interest...

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Finance

A firm has 2,000,000 shares of stock outstanding, total debt of$3,000,000 at an annual interest rate
of 8% and annual depreciation expense of $300,000, and isconsidering borrowing an additional
$6,000,000 at 8% and buying back one-half of those shares.Assuming EBIT of $1.2 million, what is this
company’s cash coverage ratio (a) before and (b) after theproposed restructuring? What can you
conclude about the impact of financial leverage on a firm’s cashcoverage ratio?

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A firm has 2,000,000 shares of stock outstanding, total debt of$3,000,000 at an annual interest rateof 8% and annual depreciation expense of $300,000, and isconsidering borrowing an additional$6,000,000 at 8% and buying back one-half of those shares.Assuming EBIT of $1.2 million, what is thiscompany’s cash coverage ratio (a) before and (b) after theproposed restructuring? What can youconclude about the impact of financial leverage on a firm’s cashcoverage ratio?