Fin 571 Week 5

Chapter 17

Question B1

Bixton Company's new chief financial officer is evaluating Biston's capital structure. She is concerned that the firm might be underleveraged, even though the firm has larger-than-average research and development and foreign tax credits when compared to other firms in its industry. Her staff prepared the industry comparison shown here.

Rating Category Fixed Charge Coverage Funds From Operations/Total Debt Long-Term Debt/Capitalization

Aa 60-80% 17-23%

A 45-65% 22-32%

Baa 35-55% 30-41%

A. Bixton's objective is to achieve a credit standing that falls, in the words of the chief financial officer, "comfortably within the "A" range. What target range would you recommend for each of the three credit measures?

Fixed Charge...