As a lender, you are contemplating a covenant that is based on the interest-coverage ratio. A young member of your organization with a new MBA degree has suggested that you calculate the ratio using actual cash interest payments each period instead of interest expense each period. You have been asked to discuss this proposal. What do you say?
Answer to relevant QuestionsThe New York Lottery provides prizes that start at $3 million and rise each time someone fails to win the lottery. Participants in the lottery are permitted to choose to receive a lump-sum payment or 26 annual payments as an ...Krispy Kreme Company, the doughnut company, had the following items on its January 29, 2012, balance sheet (in thousands): Cash and cash equivalents ......... $ 44,319Accounts payable ............. 10,494Total ...Then answer the following questions: 1. You deposit $10,000. How much will you have in 4 years at (a) 8% compounded annually, and (b) At 12% compounded annually? 2. A savings and loan association offers depositors a $10,000 ...Brock Company issued $100,000 convertible 5-year bonds with a face value of $100,000 on January 1, 20X0. The coupon rate on the bonds was 6%, and Brock received $100,000 cash for the bonds. Interest is paid semiannually. The ...Assume that on December 31, 20X0, Colorado Woolens issued $10 million of 10-year, 10% debentures. Proceeds were $11,359,000; therefore, the market rate of interest was 8%. 1. By using the balance sheet equation format, ...
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