easy · Corporate Credit Analysis
A company has EBITDA of $500 million andInterestof $50 million.
If they enter into a Sale-Leaseback transaction that adds 20 million in annual rent but allows them to retire $100 million of 10% interest debt, what happens to the basic EBITDA / Interest ratio?
- It deteriorates because of the new rent payment.
- It drops to 8.3x.
- It stays the same because total fixed costs are unchanged.
- It improves to 12.5x.
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