FIN 320 Week 2 Individual Assignment Assignments from the Readings

Apr 24th, 2015
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FIN 320 Week 2 Individual Assignment Assignments from the Readings

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Problem P2-12Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry averages and Creek's recent financial statements (on the facing page), evaluate and recommend appropriate action on the loan request.RatioDefinitionCalculationCreekIndustryDebt0.730.51TimesInterest Earned3.007.30FixedPaymentCoverage? {[(Principal ? Preferred StockDividends)] ? [1? (1 - t)]}+ {[($800,000 ??$100,000)]? [1? (1 - 0.4)]}1.191.85Because Creek Enterprises has a much higher degree of indebtedness and much lower ability to service debt than the average firm in the industry, the loan should be rejectedProblem P2-13Common-size statement analysis a common-size income statement for Creek E

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