In 2021, Cape Computer Giant, a regional computer service company, had R800 million of assets and R300
Question:
In 2021, Cape Computer Giant, a regional computer service company, had R800 million of assets and R300 million of liabilities. Earnings before interest and taxes were R160 million, interest expense was R32 million, the tax rate was 35%, principal repayment requirements were R25 million, and annual dividends were 30 cents per share on 25 million shares outstanding.
a. Calculate the following for Natural Selection:
i. Liabilities-to-equity ratio (1 mark)
ii. Times-interest-earned ratio (1 mark)
iii. Times burden covered (2 marks)
b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover:
i. Interest payment requirements (2 marks)
ii. Principal and interest requirements (2 marks)
iii. Principal, interest, and common dividend payments (2 marks)
Accounting What the Numbers Mean
ISBN: 978-0078025297
10th edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele