The information related to interest expense of Stereo Music Inc.is given below: Based on the above data,which of the following is the interest coverage ratio?
A)4.14 times
B)3.92 times
C)6.49 times
D)4.92 times

Question

The information related to interest expense of Stereo Music Inc.is given below:  Based on the above data,which of the following is the interest coverage ratio?
A)4.14 times 
B)3.92 times 
C)6.49 times 
D)4.92 times

Quizplus · Accepted Answer

The interest coverage ratio is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expense. 
Interest Coverage Ratio = EBIT/ Interest expense

So, 
Interest coverage ratio = $7,800/$1,200 = 6.5 times (approx)

Therefore, the best choice is C) 6.49 times.

The Information Related to Interest Expense of Stereo Music Inc