Question

Pva inc.'s net income for the most recent year was $16,085. the tax rate was 40 percent. the firm paid $3,896 in total interest expense and deducted $2,575 in depreciation expense. what was the cash coverage ratio for the year?

Answer 1

cash coverage ratio:

Earnings Before Interest and Taxes + Non-Cash Expenses / Interest Expense

16,085/(1-tx) = 16,085 / 0.60 = 26,808.33 <earnings before taxes
add back interest of 3,896 and depreciation of 2,575 = 26,808.33 + 3896 + 2575 = 26,808.33

solve:
26,808.33 / 3896<int exp = 6.88
so cash was 6.88 x interest expense