Alumbat Corporation has $800,000 in debt outstanding, and pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. Alumbat's current times interest earned ratio is:
A)2.4 times.
B)3.4 times.
C)3.6 times.
D)4.0 times.
E)5.0 times.

Question

Quizplus · Accepted Answer

The Answer of Alumbat Corporation has $800,000 in debt outstanding, and pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. Alumbat's current times interest earned ratio is:
A)2.4 times.
B)3.4 times.
C)3.6 times.
D)4.0 times.
E)5.0 times.

Alumbat Corporation Has $800,000 in Debt Outstanding, and Pays an Interest