Question

Steele Video has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?

A)17.27
B)15.21
C)23.41
D)12.14
E)12.68

Answer 1

The cash coverage ratio is a measure of a company's ability to meet its interest payments using its cash flow. In this case, the cash coverage ratio is 17.68.

Step-by-step explanation:

The cash coverage ratio is a measure of a company's ability to meet its interest payments using its cash flow. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense.

In this case, we can calculate the cash coverage ratio using the following formula:

Cash Coverage Ratio = (EBIT + Depreciation) / Interest Paid

First, let's calculate EBIT:

EBIT = Sales - Costs = $96,400 - $53,800 = $42,600

Next, we can calculate the cash coverage ratio:

Cash Coverage Ratio = ($42,600 + $7,100) / $2,800 = $49,700 / $2,800 = 17.68

Therefore, the value of the cash coverage ratio is 17.68. None of the given options match this result, so there may be an error in the answer choices.