If fixed lease payments are reduced and everything else remains constant,
A) times interest earned goes up.
B) fixed charge coverage goes up.
C) fixed charge coverage stays the same.
D) debt to total assets goes down.

Question

Quizplus · Accepted Answer

Fixed charge coverage measures a company's ability to meet fixed obligations such as lease payments, interest payments, and principal payments. If the fixed lease payments are reduced while everything else remains constant, the company's fixed charge coverage will go up because there is more available income to cover fixed obligations. The other options do not have a direct relationship with fixed lease payments.

If Fixed Lease Payments Are Reduced and Everything Else Remains