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? hes Reserved. May not be copied, wanned, or deplicated, in whole or in part. Due to electronic rights, see third party content may be rappressed from the ellion and/or Chapters) are content does not materially affect the overall leaming experience. Cengage Leaming reserves the right to remove addual content at any time if subsequent nghis restrictions require t Financial Statement Analysis Statement of Income Revenue $ 600,000 Cost of sales Gross profit 400,000 Expenses Sales salaries Rent Office salaries Advertising Finance costs Total expenses (313,000) 87,000 Profit before taxes Income tax expense (25,000) Profit for the year (200,000) (150,000) (20,000) (90,000) (23,000) (30,000) $ 62,000 191
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? hes Reserved. May not be copied, wanned, or deplicated, in whole or in part. Due to electronic rights, see third party content may be rappressed from the ellion and/or Chapters) are content does not materially affect the overall leaming experience. Cengage Leaming reserves the right to remove addual content at any time if subsequent nghis restrictions require t Financial Statement Analysis Statement of Income Revenue $ 600,000 Cost of sales Gross profit 400,000 Expenses Sales salaries Rent Office salaries Advertising Finance costs Total expenses (313,000) 87,000 Profit before taxes Income tax expense (25,000) Profit for the year (200,000) (150,000) (20,000) (90,000) (23,000) (30,000) $ 62,000 191
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
Related questions
Question
Exercise 3: Debt/Coverage Ratios (“Helen Wiseman”)
Complete this exercise from the text (pp. 167-168).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
PFIN (with PFIN Online, 1 term (6 months) Printed…
Finance
ISBN:
9781337117005
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed…
Finance
ISBN:
9781337117005
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning