Question

In a recent year, Day Corporation had net income of $150,000, interest expense of $30,000, and tax expense of $20,000. What was Day Corporation’s times interest earned for the year? a. 7.50 b. 5.00 c. 4.00 d. 6.67

Answer 1

Option (D) is correct.

Step-by-step explanation:

EBIT(balance) = Net income + interest expense + tax expense

= $150,000 + $30,000 + $20,000

= $200,000

Earning before taxes = EBIT(balance) - interest

= $200,000 - $30,000

= $170,000

Net income = Earning before taxes - tax expense

= $170,000 - $20,000

= $150,000

Times interest earned = EBIT ÷ Interest

= $200,000 ÷ $30,000

= 6.67