Cos Co.'s after-tax net income was $120. Their interest paid was $50. Assuming the corporate tax is 40%, what is Cos CO.'s interest coverage ratio?

Question

Quizplus · Accepted Answer

The interest coverage ratio is calculated as (Net Income + Interest + Tax) / Interest. First, calculate the tax: Tax = Interest / (1 - Tax Rate) - Interest = $50 / 0.6 - $50 = $33.33. Then, Interest Coverage Ratio = ($120 + $50 + $33.33) / $50 = $203.33 / $50 = 4.066, approximately 4.0.

Cos Co'S After-Tax Net Income Was $120