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5. More on debt management ratios The extent of financial leverage in a firm Debt ratios measure the proportion of total assets financed by a firms creditors. Sunny Co. has a debt-to-equity ratio of 2.00, compared to the industry average of 2.40. Its competitor Carter Co., however, has a debt-to-equity ratio of 1.60. Based on what debt-to-equity ratios imply, which of the following statements is true? Sunny Co. has higher creditworthiness than Carter Co. Sunny Co. has greater financial risk than Carter Co. but lower than the average financial risk in the industry. O Carter Co. has a greater risk of bankruptcy than Sunny Co. O Carter Co.s creditors face higher risk than the average financial risk in the industry. Data Collected (Millions of dollars) Sunny Co. reported the following figures in its annual report. EBITDA Interest payments Principal payments Lease payments Year 1 $800 $80 $64 $36 Based on the information, Sunny Co. has the ability to cover its fixed financial charges times.

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASEHome nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text General ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Font Alignment Number Styles Cells BG111 Formula Bar BC BD BE BF BG BH BJ BK BL BM BN BO BP 101 102 103 104 105 106 107 108 109 110 AS NO FINANCIAL INFORMATION IS AVAILABLE TRUE STATEMENT WILL BE SUNNY CO HAS GREATER FINANCIAL RISK THAN CARTER CO BUT LOWER THAN AVERAGE FINANCIAL RISK IN THE INDUSTRY ANS1 ANS 2INTEREST COVERAGE RATIOEBITDAKINTEREST PAYMENTS LEASE PAYMENT+PRINCIPAL PAYMENTS) 800/(80 +36 64) 4.44 TIMES 112 113 114 115 116 118 119 | FIFO . CASH BUDGET 45 BV MV ratio VARIANCE BEP, OL FL ratiosB-S loss SALES BUDGET DIFF ANALYSIS overheadfloat 07:02

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