Question

Margaret O’Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in 10 years. She asks you to analyze the company to determine the riskiness of the bonds.


Required:
1. Using the data provided in the accompanying financial statements, calculate the following ratios for Alpine Chemical for 2014:
a. EBIT/Interest expense
b. Long-term debt/Total capitalization
c. Funds from operations/Total debt
d. Operating income/Sales
Use the following conventions: EBIT is earnings before interest and taxes; Total capitalization is interest-bearing long-term debt plus net worth; Funds from operations means net income plus depreciation expense; and Total debt includes interest-bearing short-term and long-term debt.
2. Briefly explain the significance of each ratio calculated in requirement 1 to the assessment of Alpine Chemical’s creditworthiness.
3. Insert your answers to requirement 1 into Table 1 that follows. Then from Table 2, select an appropriate credit rating for AlpineChemical.


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  • CreatedSeptember 10, 2014
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