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The Karson Transport Company currently has net operating income of $492,000 and pays interest expense of $200,000. The company plans to borrow $1.03 million on which the firm will pay 8 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm's net operating income by $399,000 a year.
A. What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
B. What effect will the loan and the investment have on the firm's times interest earned ratio?
C. If the firm's estimates of the effect of the new investment work out as planned, do the changes have a positive effect on the firm's financial condition?

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