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The first financing alternative is a $5 million bank loan. The debt would require annual interest payments of 8% of the year's beginning balance. Annual principle payments of $1 million begin on the first day of Year 3. Under this financing arrangeent, what would be he interest coverage in Year 1? Round your answer to two decimal places. Using debt financing, what would the interest coverage be in the second year? Round your answer to two decimal places. Interest Coverage = EBIT / Interest Obligations

The first financing alternative is a $5 million bank loan. The debt would require annual interest payments of 8% of the year’s beginning balance. Annual principle payments of $1 million begin on the first day of Year 3.

Under this financing arrangeent, what would be he interest coverage in Year 1? Round your answer to two decimal places.

Using debt financing, what would the interest coverage be in the second year? Round your answer to two decimal places.

Interest Coverage = EBIT / Interest Obligations

Answer 1 : __ times.

Answer 2 : __ times.

Year 1 2 3 4 5

Revised EBIT ($1M) 2.6 3.0 4.2 5.5 6.0

Depreciation 1.0 1 1 1 1

Existing Interest .5 .5 .5 .5 .5

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