Herman's Bar and Grill paid $1,618 in interest and $265 in dividends last year. The times interest earned ratio is 1.9 and the depreciation expense is $50. What is the value of the cash coverage
Ratio?
A) 1.62
B) 1.87
C) 1.93
D) 1.99
E) 2.11

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated as (EBIT + Depreciation + Interest) / Interest. EBIT is not given, but we can calculate it as (Interest + Dividends) / Times Interest Earned Ratio = ($1,618 + $265) / 1.9 = $983. Therefore, the cash coverage ratio is ($983 + $50 + $1,618) / $1,618 = 1.93.

Herman's Bar and Grill Paid $1,618 in Interest and $265