Solve EXERCISE 3: DEBT/COVERAGE RATIOSHelen Wiseman, owner of a convenience store, is meeting her banker and hopes toincrease her working capital loan. She figures that an additional loan would increaseher finance costs by an extra $10,000. Before seeing her banker, she asks her accoun-tant to determine whether she would have difficulty servicing her debt with theadditional finance costs.With the following information, calculate the company's TIE ratio and fixed-chargescoverage ratio. If you were the banker, would you approve the loan? Why or why not?Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review hasatent does not materially affect the overall leaming experience. Cengage Leaming reserves the right to remove additional content at any time if subsequent rights restrictions require it.Financial Statement AnalysisStatement of IncomeRevenue$ 600,000Cost of sales(200,000)Gross profit400,000ExpensesSales salaries(150,000)Rent(20,000)Office salaries(90,000)Advertising(23,000)Finance costs(30,000)Total expenses(313,000)Profit before taxes87,000Income tax expense(25,000)$ 62,000Profit for the year

TIE Ratio (Time Interest Earned) Ratio = EBIT (Earning before Interest and Taxes) / Interest…

EXERCISE 3: DEBT/COVERAGE RATIOS Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to increase her working capital loan. She figures that an additional loan would increase her finance costs by an extra $10,000. Before seeing her banker, she asks her accoun- tant to determine whether she would have difficulty servicing her debt with the additional finance costs. With the following information, calculate the company's TIE ratio and fixed-charges coverage ratio. If you were the banker, would you approve the loan? Why or why not?

EXERCISE 3: DEBT/COVERAGE RATIOS Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to increase her working capital loan. She figures that an additional loan would increase her finance costs by an extra $10,000. Before seeing her banker, she asks her accoun- tant to determine whether she would have difficulty servicing her debt with the additional finance costs. With the following information, calculate the company's TIE ratio and fixed-charges coverage ratio. If you were the banker, would you approve the loan? Why or why not?

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter6: Using Credit

Section: Chapter Questions

Problem 3FPE

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