Problem $6-7$

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

$\backslash$table$[[$Sext year's expected net income after tax but before new,,$550,$allilion$],[$Sinking$-$fund payments due next year on the existing debt,,$525,$sillion$],[$Interest due next year on the existing debt,,$510,$million$],[$Common stock price, per share,$3,33\mathrm{.}0,],[$Common shares outstanding,,,diliton$],[$Company tax rate,,$301,]]$

a$.$ Calculate Adirondack's umes$-$Interest$-$eamed ratio for next year assuming the firm ralses $$60$ million of new debt at an interest rate of $4$ percent.

b$.$ Calculate Adirondack's times$-$burden$-$covered ratio for next year assuming annual sinking$-$fund payments on the new debt will equal $$3\mathrm{.}5$ million.

c$.$ Calculate next year's earnings per share assuming Adirondack ralses the $$60$ milion of new debt.

d$.$ Calculate next year's times$-$interest$-$earned ratio, times$-$burden$-$covered ratio, and earnings per share if Adirondack sells $25$ million new shares at $$23$ a share instead of ralsing 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,$],[$b$.$ Times burden covered,$],[$c$.$ Earnings per share,$],[$d$.$ Times interest earned,$],[$d$.$ Times burden covered,$],[$d$.$ Earrings per share,$]]$

Problem $6-8$

A broker wants to sell a customer an investment costing $$100$ with an expected payoff in one year of $$106\mathrm{.}8.$ The customer indicates that a $6\mathrm{.}8$ percent return is not very attractive. The broker responds by suggesting the customer borrow $$90$ for one year at $4\mathrm{.}8$ percent interest to help pay for the investment.

a$.$ What is the customer's expected return if she borrows the money?

Note: Round your answer to $1$ decimal place.

Customer's expected return