David Wright, CFA, an analyst with Blue River Investment, is considering buying a Montrose CXable Company corporate bond. He has collected the following balance sheet and income statement information for Montrose as shown in Exhibit 10.10. He has also calculated the three ratios shown in 10.11, which indicate that the bond is currently rated "A" according to the firm's internal bond-rating criteria shown in Exhibit 10.13.
Wright has decided to consider some off-balance sheet items in his credit analysis, as the off-balance- sheet items on each of the ratios found in exhibit 10.11.
1. EBITDA/Interest expense
ii. Long-term debt/equity
iii. Current assets/current liabilities.
b. State and justify whether or not the current credit yield premium compensates Wright for the credit risk of the bond based on the internal bandaging criteria found in Exhibit 10.13