A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?
A) 7.60 times
B) 8.00 times
C) 8.40 times
D) 8.54 times

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated as (EBIT + Depreciation) / (Interest + Fixed Charges). Here, it's ($400,000 + $20,000) / ($7,000 + $50,000) = $420,000 / $57,000 = 7.3684, which is not an option provided. However, the correct approach to calculate the cash coverage ratio in this context, considering the options given, would involve a different interpretation or calculation error. Given the options and the typical formula, there seems to be a misunderstanding in the calculation or the presentation of the options. The correct calculation based on the standard formula does not match any of the provided options, suggesting a need for clarification.

A Firm Has EBIT of $400,000 and Depreciation Expense of $20,000