Consolidated Industries has total interest charges of $20,000 per year. Sales of $2 million generated an operating income of $220,000 and an after-tax profit of 6% of sales. The firm has a marginal tax rate of 39%. What is the firm's times-interest-earned ratio?
A) 10
B) 11
C) 12
D) 13

Question

Quizplus · Accepted Answer

The times-interest-earned ratio is calculated as operating income divided by interest charges. Operating income is given as $220,000, and interest charges are $20,000. Therefore, the times-interest-earned ratio is $220,000 / $20,000 = 11.

Consolidated Industries Has Total Interest Charges of $20,000 Per Year