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Assignment
Nile Holdings
Last Years EBIT
$300,000,000
expected EBIT
$333,000,000
Current Portion of existing LT debt
$46,250,000
Interest Due (2017) on Exisiting Debt
$75,000,000
Tax Rate
40%
Times Interest Earned
4
Common Stock Price per share
$50
Commonshares Outstanding
25,000,000.00
Dividends per share
$2.50
A) Assume Nile raises $100 million of new debt at the end of 2016, at an interest rate of 8.25%.
a. Calculate the firm's pro forma 2017 times-interest-earned (TIE) ratio. b. Calculate 2017's times-burden-covered ratio. c. What percentage can EBIT fall before they can no longer meet there annual burden? d. Calculate 2017's earnings per share.
B) Now assume Nile sells 2 million new shares at $50 a share instead of raising new debt.
a. Calculate the firm's pro forma 2017 times-interest-earned (TIE) ratio. b. Calculate 2017's times-burden-covered ratio c. What percentage can EBIT fall before they can no longer meet there annual burden? d. Calculate 2017's earnings per share
C. Comparing parts A and B, would you recommend they issue Debt or Equity?
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