Question

Pop Evil, Inc.'s, net income for the most recent year was $10,143. The tax rate was 21 percent. The firm paid $3,410 in total interest expense and deducted $2,115 in depreciation expense. What was the cash coverage ratio for the year

Answer 1

5.39 times

Explanation:

The computation of the cash coverage ratio for the year is shown below:-

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

= (($10,143 ÷ (1 - 21%)) + $3,410 + $2,115 ÷ $3,410

= $18,364.24 ÷ $3,410

= 5.39 times

Therefore for computing the cash coverage ratio for the year we simply applied the above formula.