Answer Happy

As the manager of a financial services company, you have received a proposal seeking a term loan of $ 300 million, from a firm planning an investment in fixed assets of $ 500 million in a new project. The loan is indicated to be repayable in three annual instalments commencing from the end of the second year. The following information concerning the project is available: $ in millions) Year Particulars 1 2 3 4 150 75 100 150 Gross profit (before depreciation) Depreciation 50 45 40 35 Interest on term loan 25 45 30 15 10 15 20 20 Working capital borrowing (interest) Provision for tax 10 30 Assuming other techno-economic criteria to be satisfactory, you are required to: (a) compute appropriate financial ratio which, in your opinion, would guide the (b) interpret briefly the ratio so computed and give your views on the proposal.