Global Graphics has an annual interest expense of $30 000.Global Graphics' times-interest-earned ratio is 4.2.What is Global Graphics' operating profit?
A)$96 000
B)$57 000
C)$126 000
D)$57 600

Question

Quizplus · Accepted Answer

The times-interest-earned ratio is calculated by dividing the operating profit (or earnings before interest and taxes, EBIT) by the interest expense. Given a times-interest-earned ratio of 4.2 and an annual interest expense of $30,000, we calculate the operating profit as follows: Operating Profit = Interest Expense * Times-Interest-Earned Ratio = $30,000 * 4.2 = $126,000.

Global Graphics Has an Annual Interest Expense of $30 000