A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the times interest earned ratio for this company?
A) 0.5
B) 7.5
C) 0.3
D) 2.0

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expense.
EBIT = Net income + Interest expense + Income tax expense
EBIT = $10 million + $2 million + $3 million = $15 million
Times interest earned ratio = EBIT / Interest expense = $15 million / $2 million = 7.5
Therefore, the correct answer is B.

A Company Has Current Assets of $5 Million and Net