The amount of the issue will be between $35 million and $40 million. ESP has already arranged for a local investment banker to handle the debt issue.
January 3, 2018
Explain the reasons that the CEO might have for wanting to limit debt to 35% of total liabilities and owners’ equity
January 3, 2018

Comments on Impact’s solvency at the end of 2017

The following information is available from the balance sheets at the ends of the two most recent years and the income statement for the most recent year of Impact Company: Other Information a. Short-term notes payable represents a 12-month loan that matured in November 2017. Interest of 12% was paid at maturity. b. One million dollars of serial bonds had been issued ten years earlier. The first series of $200,000 matured at the end of 2017, with interest of 8% payable annually. c. Cash flow from operations was $185,000 in 2017. The amounts of interest and taxes paid during 2017 were $89,000 and $96,000, respectively. Required 1. Compute the following for Impact Company: a. The debt-to-equity ratio at December 31, 2017, and December 31, 2016 b. The times interest earned ratio for 2017 c. The debt service coverage ratio for 2017 2. Comment on Impact’s solvency at the end of 2017. Do the times interest earned ratio and the debt service coverage ratio differ in their indication of Impact’s ability to pay its debts? Explain. View Solution:
The following information is available from the balance sheets at

 

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