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What is the maximum amount of the loan

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Reference no: EM133005188

Question - Azalea Inc. is looking to increase its loan from the bank to finance a planned expansion. The loan agreement requires that the company's interest coverage ratio be at least 4.0. The loan has an interest rate of 5%. The company forecasts earnings before interest and taxes (EBIT) to be $1,576,900 and net income to be $1,175,400 for the coming year. What is the maximum amount of the loan that Azalea could have outstanding for the year and not be in violation of its covenant?

a) $4,701,600

b) $5,877,000

c) $6,307,600

d) $7,884,500

Reference no: EM133005188

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