In the past year,TVG had revenues of $3 million,cost of goods sold of $2.5 million,and depreciation expense of $200,000.The firm has a single issue of debt outstanding with a face value of $1million,market value of $.92 million,and a coupon rate of 8%.What is the firm's times interest earned ratio?
A) 3.75
B) 2.98
C) 2.80
D) 3.40

Question

Quizplus · Accepted Answer

EBIT = revenues − COGS − depreciationEBIT = $3,000,000 − 2,500,000 − 200,000EBIT = $300,000Interest payments = 0.08 × $1,000,000Interest payments = $80,000Times interest earned = EBIT / interest paymentsTimes interest earned = $300,000 / $80,000Times interest earned = 3.75

In the Past Year,TVG Had Revenues of $3 Million,cost of Goods