Question

Lever Age pays an 8% rate of interest on $10.90 million of outstanding debt with face value $10.9 million. The firm’s EBIT was $1.9 million.

Answer 1

a. 2.18 times

b. 2.51 times

Step-by-step explanation:

Missing question "a. What is its times interest earned? (Round your answer to 2 decimal places.) Times interest earned b. If depreciation is $290,000, what is its cash coverage? (Round your answer to 2 decimal places.) Cash coverage ratio"

a. Interest = Face Value * Rate of interest

Interest = $10.9 million * 8%

Interest = $872,000

Times interest earned = EBIT / Interest

= $1.9 million / $872,000

= 2.18 times

b. Cash coverage = (EBIT + Non Cash expenses) / Interest expenses

= ($1.9 million + $290,000) / $872,000

= $2.19 million / $872,000

= 2.51 times