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NEW QUESTION: 1

A. Option A
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D. Option B
Answer: B

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A company is financed as follows:
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* $800 million 5% bonds quoted at par.
The company plans to raise $200 million long term debt to finance a project with a net present value of
$100 million.
The bank that is providing the debt is insisting on a maximum gearing level covenant.
Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?
A. 43%
B. 45%
C. 44%
D. 46%
Answer: C

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D. NinjaCrawler
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