Rosita's Resources paid $250 in interest and $130 in dividends last year. The times interest earned ratio is 3.8 and the depreciation expense is $60. What is the value of the cash coverage ratio?
A) 2.40
B) 3.52
C) 3.80
D) 4.04
E) 4.28

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated as (EBIT + Depreciation) / Interest. Given that the times interest earned ratio is 3.8, we can find EBIT by multiplying the interest ($250) by 3.8, which gives $950. Adding depreciation ($60) gives $1010. Dividing $1010 by the interest ($250) gives a cash coverage ratio of 4.04.

Rosita's Resources Paid $250 in Interest and $130 in Dividends