Calculate Progressive’s times-burden-covered ratio for next yea

What is meant by ‘Profitability’ of business?
December 12, 2020
Provide recommendation to your board of directors on which avenue to pursue.
December 12, 2020

As the financial vice president of Progressive Media, you have the fol-

lowing information:

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Next year’s expected net income after tax but before new financing

Sinking-fund payments due next year on existing debt Interest due next year on existing debt
Company tax rate
Common stock price, per share

Common shares outstanding

$50 million $17 million $18 million 35%

$25

20 million

  1. Calculate Progressive’s times-interest-earned ratio for next year as- suming the firm raises $50 million of new debt at an interest rate of 7 percent.
  2. Calculate Progressive’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $8 million.
  3. Calculate next year’s earnings per share assuming Progressive raises the $50 million of new debt.
  4. Calculate next year’s times-interest-earned ratio, times-burden- covered ratio, and earnings per share if Progressive sells 2 million new shares at $20 a share instead of raising new debt.

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