Question

Pop Evil, Inc.'s, net income for the most recent year was $10,112. The tax rate was 21 percent. The firm paid $3,430 in total interest expense and deducted $2,162 in depreciation expense. What was the cash coverage ratio for the year

Answer 1

Cash coverage ratio =4.32

Step-by-step explanation:

Net income = $10,112

Tax rate = 21 %

interest expense = $3,430

Depreciation expense =$2,162

Cash coverage ratio =EBIT + Non-cash expenses ÷ Interest expense

but

EBIT= Net Income/ 1 -Tax rate=12,800

EBIT= $10,112/1-0.21=$12,800

Cash coverage ratio =EBIT + Non-cash expenses(depreciation) ÷ Interest expense

Cash coverage ratio =$12,800+$2,162 / $3,430

Cash coverage ratio =4.32