Amount of Debt. Boston Corporation has $30 million of 10 percent mortgage bonds outstanding. The indenture allows the issuance of additional bonds provided the following conditions are met: (1) The before-tax times-interest-earned ratio exceeds 4; (2) book value of the mortgaged assets is at least two times the amount of debt; and (3) the debt/equity ratio is less than 0.5.
The following additional data are provided: (1) Income before tax is $11 million; (2) equity is $90 million; (3) book value of mortgaged assets is $80 million; and (4) forty percent of the proceeds of a new issue would be added to the base of mortgaged assets.
How much additional debt can be issued?
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here