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Bank Loan Request

I am having a hard time understanding this question and choosing the correct answer. Any help would be kindly appreciated.

If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

a. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.

b. The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.

c. Other things held constant, the lower the current asset ratio, the lower the interest rate the bank would charge the firm.

d. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.

e. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.

Solution Preview

Bank would charge a lower rate of interest if the financial risk is less

a. Is not correct. TIE = EBIT/Interest. A low TIE would imply that EBIT is close to interest and that is not a good sign
b. Is not correct. ...

Solution Summary

The solution explains the correct statement when evaluating a bank loan request

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