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NEW QUESTION: 1
A company has a covenant on its 5% long term corporate bond.
* Covenant - The earnings must not fall below $7 million
The bond has a nominal value of $60 million.
It is currently trading at 80% of its nominal value.
The projected earnings before interest and taxation for next year are $11.5 million.
The company retains 80% of its earnings. It pays tax at 20%.
Advise the Board of Directors which of the following covenant conditions will apply next year?
A. The earnings will be = $5.44 million (The covenant will be breached).
B. The earnings will be = $6.80 million (The covenant will be breached).
C. The earnings will be = $11.50 million (The covenant will not be breached).
D. The earnings will be = $7.28 million (The covenant will not be breached).