Company 1 has a higher Debt/EBITDA leverage ratio than Company 2 in 2014.

a. True

b. False

Company 1 2010 2011 2012 2013 2014 [E] 2011 2012 2013 2014 [E] 329.0 295.3 33.7 28.6 1.7 1553 142.5 12.8 161.9 148.6 13.3 149.5 137.1 12.4 2.9 2.5 316.4 284.1 32.3 26.7 1.7 3.9 0.3 Income statement Net sales COGS Gross profit Operating expenses Depreciation and amortization Operating profit Interest expense Income taxes Net income EPS Dividend 3.0 289.9 259.4 30.5 20.9 1.6 8.0 0.0 2.8 5.2 $1.30 S0.20 345.5 310.4 35.1 30.3 1.8 3.0 304.1 273.1 31.0 21.6 1.6 7.8 0.0 2.7 5.1 $1.27 $0.20 2.9 Company 2 2010 Income statement Net sales 137.8 COGS 126.1 Gross profit 11.7 Operating exp 2.9 Depreciation a 1.8 Operating proi 7.0 Interest expen: 0.4 Income taxes 2.3 Net income EPS $1.23 Dividends $0.24 3.4 143.5 131.5 12.0 2.9 2.2 6.9 0.4 2.3 4.2 $1.21 0.24 7.0 2.8 7.0 0.4 7.4 0.0 1.3 1.1 2.3 0.2 1.1 2.1 $0.52 $0.20 2.0 2.3 $0.58 $0.20 4.3 0.4 2.3 4.3 $1.22 0.24 0.4 2.5 4.6 $1.30 0.24 4.3 $1.23 0.24 $0.49 0.20 4.2 1.0 0.4 31.0 22.0 13.5 1.5 15.2 4.2 5.1 Balance sheet Cash Accounts receivable Other current assets Current assets Net PP&E Investments and other assets Total assets 3.6 20.7 6.3 30.6 3.1 45.0 78.7 3.3 29.3 4.9 37.5 7.2 47.3 92.0 1.5 30.4 5.0 36.9 9.2 47.6 93.7 4.9 36.3 Balance sheet Cash Accounts rece Other current : Current assets Net PP&E Investments as Total assets 31.3 5.1 47.1 83.6 1.8 13.1 2.8 17.7 16.0 35.9 69.6 1.9 14.6 4.1 20.6 18.6 4.0 18.5 17.4 38.6 74.5 11.2 47.2 94.6 2.1 16.2 4.2 22.5 20.9 43.5 86.8 20.9 19.7 43.2 83.8 41.8 81.1 5.6 5.3 8.9 9.3 11.5 25 04 7.6 4.0 11.6 15.0 11.4 8.7 8.3 Accounts payable Bank borrowing Current Liabilities Accrued expenses and deferred taxes Other non-current liabilities Total liabilities Shareholders' equity Total liabilities and equity 13.9 17.5 36.7 5.6 13.9 16.6 36.1 42.6 78. 7 17.0 10.4 0.0 10.4 15.5 17.9 43.8 50.8 94.6 13.0 15.3 17.3 44.0 49.7 93.7 Accounts pays 9.9 10.4 11.0 Long-term det 0.4 0.4 04 Current Liabil 10.3 10.8 11.4 Long-term det 7.7 Accrued expe: 11.6 12.8 13.1 13.3 Other non-cur. 11.0 11.2 12.5 11.4 Total liabilitie 40.5 44.4 Shareholders 29.1 32.5 36.0 39.4 Total liabilitie 69.6 74.5 81.1 83. * Interest rate on long-term debt outstanding is at 4.5% per year. Principal amount of long-term debt is amortized at $0.4m per year. 43.6 48.4 92.0 10.9 46.9 42.0 45.1 83.6 43.1 86.8