As the financial vice president of Progressive Media, you have the following information:
Next year's expected net income after tax but before new financing ........ $50 million
Sinking-fund payments due next year on existing debt ....................... $17 million
Interest due next year on existing debt .......................................... $18 million
Company tax rate .................................................................. 35%
Common stock price, per share ................................................... $25
Common shares outstanding ..................................................... 20 million
a. Calculate Progressive's times-interest-earned ratio for next year assuming the firm raises $50 million of new debt at an interest rate of 7 percent.
b. Calculate Progressive's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $8 million.
c. Calculate next year's earnings per share assuming Progressive raises the $50 million of new debt.
d. Calculate next year's times-interest-earned ratio, times-burden covered ratio, and earnings per share if Progressive sells 2 million new shares at $20 a share instead of raising new debt.