Question

FVA Inc.’s net income for the most recent year was $40,825. The tax rate was 24 percent. The firm paid $10,320 in total interest expense and deducted $10,570 in depreciation expense. What was the cash coverage ratio for the year?

Answer 1

Answer: 7.23 times

Step-by-step explanation:

Cash coverage ratio = Cash available/ Interest expense

Cash Available = Net Income before tax + Interest expense + Depreciation

= (40,825 / (1 - 24%)) + 10,320 + 10,570

= $74,607.11

Cash coverage ratio = 74,607.11/10,320

= 7.23 times