Question: In 2010, Natural Selection, a nationwide computer dating service, had $500 million of assets and $200 million of liabilities. Earnings before interest and taxes were $120 million, interest expense was $28 million, the tax rate was 40 percent, principal repayment requirements were $24 million, and annual dividends were 30 cents per share on 20 million shares outstanding.
a. Calculate:
i. Natural Selection's liabilities-to-equity ratio
ii. Times interest earned ratio
iii. Times burden covered
b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover:
i. Interest payment requirements?
ii. Principal and interest requirements?
iii. Principal, interest, and common dividend payments?