Homework Answers
1) High debt to equity reatio implicates that the debt level is high and the company many not be able to fulfill its debt obligations due to lack of cash
Here since, 3.12(industry) > 2.60(weghorst Co) > 2.08(Bellywood Co)
So the answer is B) Weghorst has higher financial risk than bellywood but lower than industry
2) Market to debt ratio = total liablities /(total liabilities+market value of equity)
where market value of equity = share price * total outstanding shares
so as share price increases market value of equity increases, which results in decrease in market debt ratio
as market debt ratio decreases, financial risk also decreases
so the answer is B
3)
fixed charge coverage ratio = EBITDA/(Interest payments+Principal Payments + Lease Payments) = 750 / (75+60+34) = 4.44
so the answer is 4.44
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