Consolidated Industries has total interest charges of $20,000 per year.Sales of $2 million generated an operating income of $220,000 and an after-tax profit of 6% of sales.The firm has a marginal tax rate of 40%.What is the firm's interest coverage ratio?
A)10
B)11
C)12
D)13

Question

Quizplus · Accepted Answer

The interest coverage ratio is calculated as operating income divided by interest charges. Operating income is $220,000 and interest charges are $20,000, so the interest coverage ratio is $220,000 / $20,000 = 11.

Consolidated Industries Has Total Interest Charges of $20,000 Per Year