The JLS Trucking Company currently has assets of $30 million, a tax rate of 35%, an expected ROA (EBIT/Assets) of 12% and an ROA standard deviation of 6%. JLS has $9 million of debt with an interest rate of 8%.

JLS must earn what ROA in order to cover its interest once?

2.40%.

2.70%.

7.20%.

8.00%.

9.60%.

If you were trying to estimate the probability that JLS will not cover its interest payments once, what would be your Z-score?

0.20.

0.60.

1.60.

-0.20.

-1.60.

What is the probability that JLS will not cover its interest payments?

1.72%

1.97%.

5.48%.

10.23%

12.07%.

Suppose that JLS would like to have the probability that it will not be able to cover its interest once (a coverage ratio of 1.0) of 3%. What is the critical ROA that JLS must earn for the 3% probability of not covering once?

0.64%.

0.72%.

1.20%.

8.00%.

11.28%.

What is the maximum leverage ratio that JLS can have for the probability that it will not be able to cover its interest at least once to less than 3%?

4.25%

7.64%

8.94%

12.20%

16.08%

On average, companies in the trucking industry (not JLS but the entire industry) have an average of 2.12 standard deviations between their mean ROA and the ROA necessary to meet fixed charges. What is the implied probability that the average company in the trucking industry will be unable to meet its fixed charge obligations?

98.30%.

73.40%.

32.60%.

3.51%.

1.70%.