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F. Naz
F. Naz, Chartered Accountant
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Experience:  Experience with chartered accountancy
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For Muhammad, please explain & show complete work/formula used/calculation

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For Muhammad, please explain & show complete work/formula used/calculation for the following:

(Choosing financial targets) Bixton Company’s new chief financial officer is evaluating Bixton’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.

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?
Before settling on these target ranges, what other factors should Bixton’s chief financial officer consider?
Before deciding whether the target ranges are really appropriate for Bixton in its current financial situation, what key issues specific to Bixton must the chief financial officer resolve?

Rating Category Fixed Charge Coverage Funds From Operations/Total Debt Long-Term Debt/Capitalization
Aa
4.00–5.25x
60–80%
17–23%
A
3.00–4.30
45–65
22–32
Baa
1.95–3.40
35–55
30–41
Submitted: 2 years ago.
Category: Homework
Expert:  F. Naz replied 2 years ago.

To be ranked A, it is recommended that the company should be on lower side of rating and they are

· FiFixed Charge Coverage = 3.0 - 4.30

· CFund from operation/ Total Debt = 45 - 65

· Long-Term Debt / Capitalization = 22 - 32

Other factors in additional to tax credit, the cost of issuance of securities to be considered. It should also be kept in mind that the R&D is not tangible assets; therefore, the lenders would be reluctant to give loan.

Customer: replied 2 years ago.
please show complete work for further understanding, thanks
Expert:  F. Naz replied 2 years ago.
The answer for the question is in descriptive in nature, so how the working can be shown as no calculations are involved, thanks.
Customer: replied 2 years ago.
I'm not sure if it makes a different, please see the correct format for the table as follow and advise. Thanks


Rating Category Fixed Charge Funds From Operations/ Long-Term Debt
Coverage Total Debt Capitalization
Aa 4.00–5.25x 60–80% 17–23%
A 3.00–4.30 45–65 22–32
Baa 1.95–3.40 35–55 30–41


Expert:  F. Naz replied 2 years ago.
Yes it does not make any difference, thanks.
Customer: replied 2 years ago.
So, what would the answer to these? Please specify. Thank you so much

1. 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?

2. Before settling on these target ranges, what other factors should Bixton’s chief financial officer consider?

3. Before deciding whether the target ranges are really appropriate for Bixton in its current financial situation, what key issues specific to Bixton must the chief financial officer resolve?
Expert:  F. Naz replied 2 years ago.
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F. Naz, Chartered Accountant
Category: Homework
Satisfied Customers: 4073
Experience: Experience with chartered accountancy
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