George Hedderwick finished his customary peanut butter
Not what you're looking for?
George Hedderwick finished his customary peanut butter and jelly sandwich, washed it down with a root beer, and turned back to his computer. His morning had been spent developing a financial planning model for Executive Fruit (see Figure 18-2). Now he needed to run out the projections to 2007. In particular, he wanted to check what would happen if the firm continued to expand at 10 percent and relied on new issues of debt to make up any required external financing. Would the standard measures of leverage, such as the debt ratio and the interest cover start to spin out of control? Executive Fruit's bank had stipulated that the company's debt ratio should not exceed 60 percent, and George wanted to see whether there was any risk that this condition would be breached. It might be OK if interest rates stayed at their current level, but it looked as if the Fed could raise rates in the near future. George decided that he would also develop some projections assuming that the interest rate increased from 10 percent to 15 percent.
Although the CEO appeared reluctant to raise new equity, George thought he would take the opportunity to explore other financial strategies. In particular, he was interested to see how things might look if Executive Fruit kept to a constant 40 percent debt ratio. The return on equity might not look so good in this case, but it would certainly keep the company's bankers happy.
Purchase this Solution
Solution Summary
The solution provides very detailed Excel calculations for the problem.
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Basics of corporate finance
These questions will test you on your knowledge of finance.