Ingenuity Corporation has accumulated a significant amount of debt as a result of the recent launch of a constellation of satellites. It is currently considering acquiring and launching its largest state-of-the-art observation satellite, SkyEye. Ingenuity’s existing debt covenants stipulate that it cannot go beyond a debt-to-equity ratio of 1.5:1 and a net debt as a percentage of capitalization ratio of 0.8:1. The acquisition of SkyEye will cost $200 million. Ingenuity’s current level of equity is $500 million, and its current level of interest-bearing debt is $675 million. Ingenuity has a cash balance of $75 million. It will finance the acquisition with a 15-year bond of $175 million that carries a 7% interest rate sold at par.

Required 

a. Determine Ingenuity’s debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition. 

b. Determine whether Ingenuity could acquire SkyEye with the bond issue and remain in compliance with the existing debt covenants.