Homework hmwk 5 Score 0 of 1 pt Problem 415 similar to 2 of

Homework: hmwk 5 Score: 0 of 1 pt Problem 4-15 (similar to) 2 of 5 (0 complete) (Financing decisions) Emma\'s Electronics Incorporated has total assets of $67 million and total debt of $11 million. The company also has operating profits of $53 million with interest expenses of $7 million. a. What is Emma\'s debt ratio? b. What is Emma\'s times interest earned? c. Based on the information above, would you recommend to Emma\'s management that the firm is in a strong enough position to assume more debt and increase interest expense to $9 million? a. Emma\'s debt ratio is ?96. (Round to two decimal places.)

Solution

Debt ratio = total debt/total asset

= 11/67 = 16.42

Times interest earned = operating profit/interest expense

= 7.57

Yes I would recommend to increase interest expense to $9 Million by assuming more debt.