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  1. business
  2. accounting
  3. company abc currently has $200 million debt and $8

Company ABC currently has $200 million debt and $800 million equity. It has an EBIT...

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Accounting

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Company ABC currently has $200 million debt and $800 million equity. It has an EBIT of $75 million. The risk free rate is 3%. The cost of debt as well as coupon rate of debt is 3.3%, which corresponds to an AAA credit rating (see table below). If the firm increases debt ratio to 40%, what will be the interest coverage ratio, credit rating, and cost of debt (ra)? If INT Coverage ratio > If INT Coverage ratio >= rating Default spread (in basis points) 30 8.5 100000 AAA 6.5 8.5 AA 50 5.5 6.5 A+ 63 4.25 5.5 A 71 3 4.25 A- 84 interest coverage ratio = 5.165, credit rating = A, rd = 3.71% interest coverage ratio = 5.68, credit rating = A+, rd = 3.63% interest coverage ratio = 5.05, credit rating = A, rd = 3.71% O interest coverage ratio = 5.165, credit rating = A+, rd = 3.63%

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