$17$

Problem $6-7$

As the chief financial officer of Adirondack Designs, you have the following information:

$\backslash$table$[[$Next year's expected net income after tax but before new financing,$ $49$ million$],[$Sinking$-$fund payments due next year on the existing debt,$ $24$ million$],[$Interest due next year on the existing debt,$ $10$ million$],[$Common stock price, per share,$ $32\mathrm{.}5],[$Common shares outstanding,$29$ million$],[$Company tax rate,$45\%]]$

a$.$ Calculate Adirondack's times$-$interest$-$earned ratio for next year assuming the firm raises $$59$ million of new debt at an interest rate of $5$ percent.

b$.$ Calculate Adirondack's times$-$burden$-$covered ratio for next year assuming annual sinking$-$fund payments on the new debt will equal $$4\mathrm{.}0$ million.

c$.$ Calculate next year's earnings per share assuming Adirondack raises the $$59$ million of new debt.

d$.$ Calculate next year's times$-$interest$-$earned ratio, times$-$burden$-$covered ratio, and earnings per share if Adirondack sells $2\mathrm{.}4$ million new shares at $$24$ a share instead of raising new debt.

Note: Do not round intermediate calculations. Round "Earnings per share" answers to $2$ decimal places and other answers to $1$ decimal place.

$\backslash$table$[[$a$.$ Times interest earned,$4\mathrm{.}6$