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Essay

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Nile Holdings
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Selected financial information as of Dec. 31,2014
$\begin{array}{lr}\hline \text { Last year's EBIT (2014) } & \$ 175.0 \text { million } \\\text { Expected EBIT (2015) } & \$ 189.8 \text { million } \\\text { Current portion of existing long-term debt, due } 2015 & \$ 34 \text { million } \\\text { Interest due in } 2015 \text { on existing debt } & \$ 36 \text { million } \\\text { Taxrate } & 35 \% \\\text { Common stock price per share } & \$ 50.00 \\\text { Common shares outstanding } & 20 \text { million } \\\text { Dividends per share } & \$ 2.00 \\\hline\end{array}$

-Please refer to the financial information for Nile Holdings above.Nile must decide how to finance a $100 million investment.Assume Nile raises $100 million of new debt at the end of 2014,at an interest rate of 7%.a.Assuming Nile must make a $20 million payment on the new debt next year,calculate the firm's times-burden-covered ratio and times-common-covered ratio (i.e. ,the number of times EBIT could cover interest,principal payments,and dividends).b.As Nile's banker,would you be comfortable loaning the company this new debt? Briefly explain why,or for what reasons you'd be comfortable or uncomfortable.