Problem 13, part f in Chapter 3 asks you to construct a five-year financial projection for Aquatic Supplies beginning in 2015. Based on your forecast or the suggested answer available through McGraw-Hill’s Connect, answer the questions below.
a. Calculate the company’s annual times-interest-earned ratio over the forecast period.
b. Calculate the percentage EBIT can fall before interest coverage dips below 1.0 for each year in the forecast.
c. Consulting Table 6.5 in the text, what bond rating would Aquatic Supplies have in 2014 if the rating was based solely on the firm’s interest coverage ratio?
d. Based on this rating, would a significant increase in financial lever-age be a prudent strategy for Aquatic Supplies?