\fChapter 6 Problem 15 Using the nancial statements provided below to answer the following questions: a. What was the book value ofNova's shareholders' equity from 2015 to 201?? 'What were Nova's debtto assets and timesinterestearned ratios in these years? {Use pretax income plus interest expense as EBI'I'.) 'What do these gures suggest about Nova's use of nancial leverage? Consulting Table 65 in the text, what bond rating would Nova have in 2016 ifthe rating were based solely on the rm's coverage ratio? b. 'What percentage decline in EBIT could Nova have suffered in each year before Nova would have been unable to make its interest payments out of operating income? c. Assuming a 35 percent corporate taxrate, and 2016 earnings before interest andtaxes of$395 million, by how much did Nova's $60 milhon interest expense reduce taxes? d Answer qmon (a) and ['b} again for 2016 assuming the company had borrowed an additional $3 billion in debt at 3 percent interest at the start of the year and distributed the proceeds to shareholst as a special dividend You may ignore the eect ofadded interest expense on Nova's balance sheet. Might shareholders benet from such an increase in nancial leverage? Explain. e. Based on your analysis, is Nova heavily or modestly indebted? Should the company acquire more debt, or shed existing debt? 1E'J'lsy? NOVA PRDDUCTS INCDME STATEMENT {S millions) 20 15 2016 20]? Sales 5,95?.3 6,223.3 6,3?6.0 Cost of Goods Sold 2,156.9 2,21 ?.6 2,431.3 Gross Prot 3,300.9 4,010.? 4,394.2 Selling, General, 3r. Administrative Expense 2,339.5 2,9?9.6 3,213.6 OperatinglncomeBeforeDepreciation 911.4 1,031.1 1,130.6 Depreciation, Depletion, 3r. Amortization 109.0 124.3 123.5 Operating Prot 302.4 906.3 1,05 ?.1 Interest Expense ?1.1 59.? 49.0 NonOperating Income-(Expense 36.3 25.3 [0.3) Special Items ??.9 36.3 14.3 Pretax Income 639.? 335.6 993.5 Total Income Taxes 240.3 292.3 313.9 Minority Interest 4.5 3.? 9.3 Income Before Extraordinary Items 3'. Discontinued Operation: 444.9 534.6 664.3 Extraordinary Items {0.3) 0.0 0.0 Discontinued Operations 0.0 0.0 0.0 Adjusted Net Income 444.6 534.6 664.3