Mistletoe Gifts has $93,840 in total assets,depreciation of $2,106,and interest of $1,214.The total asset turnover rate is .94.Earnings before interest and taxes are equal to 19 percent of sales.What is the cash coverage ratio?
A)6.33
B)7.51
C)15.54
D)10.23
E)13.98

Question

Quizplus · Accepted Answer

First, we need to calculate the sales using the total asset turnover rate:

Total Asset Turnover = Sales / Total Assets
0.94 = Sales / 93,840
Sales = 88,329.60

Next, we can calculate earnings before interest and taxes (EBIT):

EBIT = 0.19 x Sales
EBIT = 0.19 x 88,329.60
EBIT = 16,784.02

To calculate the cash coverage ratio, we need to add back depreciation and interest expenses to EBIT:

Cash Coverage Ratio = (EBIT + Depreciation + Interest) / Interest
Cash Coverage Ratio = (16,784.02 + 2,106 + 1,214) / 1,214
Cash Coverage Ratio = 15.54

Therefore, the cash coverage ratio is 15.54, and the best answer choice is C.

Mistletoe Gifts Has $93,840 in Total Assets,depreciation of $2,106,and Interest