Problem 13, part f in Chapter 3 asks you to construct a five-year financial projection f...

Problem 13, part f in Chapter 3 asks you to construct a five-year financial projection for Aquatic Supplies beginning in 2015. Based on your forecast or the suggested answer available through McGraw-Hill’s Connect, answer the questions below.

a. Calculate the company’s annual times-interest-earned ratio over the forecast period.

b. Calculate the percentage EBIT can fall before interest coverage dips below 1.0 for each year in the forecast.

c. Consulting Table 6.5 in the text, what bond rating would Aquatic Supplies have in 2014 if the rating was based solely on the firm’s interest coverage ratio?

d. Based on this rating, would a significant increase in financial leverage be a prudent strategy for Aquatic Supplies?

Reference: Chapter 3, Problem 13

This problem asks you to prepare one- and five-year financial forecasts and conduct some sensitivity analysis and scenario analysis for Aquatic Supplies Company. A spreadsheet containing the company’s 2014 financial statements and management’s projections is available for download from McGraw-Hill’s Connect or your course instructor (see the Preface for more information). Use this information to answer the questions posed in the spreadsheet.

Reference: Table 6.5