Skylar's Bed and Breakfast has $126,500 in total assets, depreciation of 3,500, and interest of $1,850.The total asset turnover rate is 1.02.Earnings before interest and taxes are equal to 24 percent of sales.What is the cash coverage ratio?
A) 9.37
B)16.74
C)18.63
D)20.72
E)22.82

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated as (EBIT + Depreciation) / Interest. First, calculate sales using the total asset turnover rate: Sales = Total Assets * Turnover Rate = $126,500 * 1.02 = $128,030. Then, calculate EBIT: EBIT = 0.24 * Sales = 0.24 * $128,030 = $30,727.20. Finally, calculate the cash coverage ratio: ($30,727.20 + $3,500) / $1,850 = 18.63.

Skylar's Bed and Breakfast Has $126,500 in Total Assets, Depreciation