How many times can the Johnson Corporation cover their interest expenses if the firm has sales of $3,000,000,total assets of $2,100,000,EBIT equal to $1,000,000,a tax rate of 40% and interest expense of $250,000?
A)1.43
B)2.10
C)4.00
D)12.00

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as EBIT divided by interest expense. Here, EBIT is $1,000,000 and interest expense is $250,000. Therefore, the times interest earned ratio is $1,000,000 / $250,000 = 4. This means the Johnson Corporation can cover their interest expenses 4 times.

How Many Times Can the Johnson Corporation Cover Their Interest