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    Credit worthiness of the company

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    B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a
    capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified
    six comparable firms and calculated the credit statistics shown here.

    a. Sanderson's return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
    b. Are there any firms among the six who are particularly good or bad comparable? Explain.
    c. Suppose Sanderson's current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?

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    Solution Preview

    These are the ratings of Moody

    Moody judges obligations rated Aaa to be the highest quality,[7] with the "smallest degree of risk".[8]
    Aa1, Aa2, Aa3
    Moody judges obligations rated Aa to be high quality, with "very low credit risk",[7] but "their susceptibility to long-term risks appears somewhat greater".[8]
    A1, A2, A3
    Moody judges ...

    Solution Summary

    Response helps in explaining the credit worthiness of the company