In 2020, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million of liabilities. Earnings
In 2020, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million of liabilities. Earnings before interest and taxes were $120 million, interest expense was $28 million, the tax rate was 40 percent, principal repayment requirements were $24 million, and annual dividends were 30 cents per share on 20 million shares outstanding.
a. Calculate the following for Natural Selection:
i. Liabilities-to-equity ratio
ii. Times-interest-earned ratio
iii. Times burden covered
b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover:
i. Interest payment requirements
ii. Principal and interest requirements
iii. Principal, interest, and common dividend payments
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