The Princeville Company has debt covenants on its bank loan. During the 15-year term of the loan, Princeville must comply with these covenants: 

a. Current ratio must be 1.25 or higher.

b. Debt ratio must not go above 60.0%.

c. Times-interest-earned (TIE) ratio must be at least 3.00.

Managers in the company are evaluating three projects and the following What-If Scenario summary has been prepared.

Which project(s) meet(s) all three of the debt covenant requirements? For those projects that do not meet the debt covenant requirements, specify which specific debt covenants would be violated by each of those projects.

Transcribed Image Text:

+0 . 1 2 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Scenario Summary Changing Cells: Additional_current_assets Additional_long_term_assets Additional_current_liabilities Additional_long_term_liabs Add_revenue_or_reduce_expenses Interest rate Result Cells: Current_ratio Debt_ratio TIE_ratio Current Values: 0.030 1.58 50.4% 8.34 Notes: Current Values column represents values of changing cells at time Scenario Summary Report was created. Changing cells for each scenario are highlighted in gray. Project 1 100,000 80,000 180,000 42,000 0.035 2.42 66.3% 7.11 Project 2 60,000 60,000 6,000 0.080 1.04 57.1% 3.51 Project 3 85,000 85,000 0.030 1.58 59.4% 3.91