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Chapter 5: Q1DQ (page 524)

Corporate debt has been expanding very dramatically in the last three decades. What has been the impact on interest coverage, particularly since 1977? (LO16-1)

Short Answer

Expert verified

In 1977, the U.S. corporations had interest coverage eight times, decreasing when the financial crisis ended.

Step by step solution

01

Corporate debt

Corporate debt is one of the financial instrumentsissued by a corporation to raise capital. A person investing in corporate debts is entitled to receive fixed interest payments.

02

Impact of corporate bond on interest coverage

The U.S. manufacturing corporations covered its interest payments at a rate of eight times by operating earningsin 1977.

At the end of thefinancial crisis in 2007-08, the times' interest earned graph moved down to 2.4 times.

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