Which one of the following statements is correct?
A) If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0.
B) Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5.
C) The debt-equity ratio can be computed as 1 plus the equity multiplier.
D) An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.
E) An increase in the depreciation expense will not affect the cash coverage ratio.

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated by adding depreciation and amortization back to earnings before interest and taxes (EBIT), then dividing by the interest expense. Since depreciation is added back in the calculation, an increase in depreciation expense will not affect the cash coverage ratio.

Which One of the Following Statements Is Correct