A company with income before income taxes of $194,000,and $20,000 in interest expense,has an interest coverage ratio of

Question

Quizplus · Accepted Answer

Interest coverage ratio is calculated as earnings before interest and taxes (EBIT) divided by interest expense.

Interest coverage ratio = EBIT / Interest expense

Given,

Income before income taxes = EBIT = $194,000
Interest expense = $20,000

Interest coverage ratio = EBIT / Interest expense

= $194,000 / $20,000

= 9.7

Therefore, the company's interest coverage ratio is 9.7 times. Hence, the best choice is A) 10.7 times, which is not listed as an option.

A Company with Income Before Income Taxes of $194,000,and $20,000