Question: Expected ROA: 16% STD DEV ROA: 4% Assets: $10,000M Interest Rate: 12% Debt: 4,000M What is the probability of Coverage Ratio(CR) <1.0? What is the

Expected ROA: 16%

STD DEV ROA: 4%

Assets: $10,000M

Interest Rate: 12%

Debt: 4,000M

  1. What is the probability of Coverage Ratio(CR)<1.0?
  2. What is the probability of a CR <3.0
  3. What is the maximum amount of debt the company can service and have a 3% probability that the coverage ratio will fall to 1.0 or less?
  4. What is the maximum amount of debt the company can service and have a 10% probability that the coverage ratio will fall to 1.0 or less?
  5. If the interest rate on debt is 14% instead of 12% and all other values in Table 1 are in effect, what is the probability of having a coverage ratio less than 1.0?
  6. If the interest rate is 14%, what debt ratio corresponds to a probability of a CR <1 of 15%?
  7. What is the probability that the companies EBIT will be 0 or less?
  8. In the sample of companies provided by Sandberg, Lewellen, and Stanley, what percentage with a bond rating of AAA had a probability of a coverage ration falling to less than 1.0 of more than 1%.Compare this to the percent of companies with a bond rating of C.Does a strong, weak, or no relationship appear to hold between fixed cost coverage and bond rating?Explain

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