Homework hmwk 6 Score 0 of 1 pt Bookmatch 415 bookstatic 6 o

Homework: hmwk 6 Score: 0 of 1 pt Bookmatch 4-15 (book/static) 6 of 6 (0 complete) (Financing decisions) Emma\'s Electronics Incorporated has total assets of $63 million and total debt of $42 million. The company also has operating profits of $21 million with interest expenses of $6 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 %. (Round to two decimal places.)

Solution

Debt ratio = total debt/ total asset

= 42/63

= .67

Times interest earned = operating profit/interest expense

= 21/6

= 3.5

yes, firm is strong enough to assume more debt and interest expense to $9 million .