A Business Has a Times-Interest-Earned Ratio of 12, a Leverage

question 33

Multiple Choice

A business has a times-interest-earned ratio of 12, a leverage ratio of 22%, an EPS of $2.23 on a share price of $19.75. Inflation is just below 3.5%, the economy is stable and the rate for government bonds is 5%. The business is in a highly dynamic market and is looking for capital financing which will impact 15% of its capital structure. How should the company finance its new investment opportunity?

• A) Debt.
• B) Common shares.
• C) Retained earnings.
• D) Preferred shares.
• E) 50% debt and 50% equity.

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