Company has $100 million of 13% debentures outstanding. Breach the restriction?
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Company has $100 million of 13% debentures outstanding. The indenture (loan covenants) limits additional borrowing such that the total interest coverage (EBIT/interest) is at least 3 times. Company's EBIT last year was 52 million. How much could Company borrow under a term loan at 13% interest without breaching the indenture restriction?
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Solution Summary
The solution presents a step by step explanation and calculation to arrive at the answer to how much more can be borrowed before breaching the indenture restriction.
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EBIT/ Interest = 3 given by the problem.
Also given by the problem is that EBIT is 52 million.
So we have EBIT/3 = Maximum Interest.
Or 52/3 = Maximum interest = 17.3333 million.
However, the ...
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