Question

The Dew Drop Inn has Sales of $289,600, Depreciation Expense of $21,400, Interest Expense of $1,300, Net Income of $14,500, and an average tax rate of 34 percent. What is the ‘Times Interest Earned ratio?’ Question 20 options: 11.15 12.15 17.90 28.62

Answer 1

17.90

Step-by-step explanation:

Times interest earned ratio measures the ability of the business to pay the interest on its debt. It calculates the times that company can pay its current interested payment from earning.

Earning before interest and tax = Net income + Tax expense + Interest expense = $14,500 + $14,500 x 34/(100-34) + $1,300 = $14,500 + $7,470 + $1,300 = $23,270

Times interest earned ratio = Earning before interest and tax / interest tax

Times interest earned ratio = $23,270 / $1,300 = 17.90