Use the following information from separate companies a through d: Net Income (Loss) Interest Expense Income...

Use the following information from separate companies a through d:

	Net Income (Loss)		Interest Expense		Income Taxes
a.	$	102,000	$	37,740	$	25,500
b.		96,600		34,776		34,776
c.		86,700		34,680		36,414
d.		105,100		7,357		50,448

1a. Compute times interest earned.

Company	numerator	/	denominator	=	ratio
		/		=	n/a
a	$	/	$	=	n/a
b	$	/	$	=	n/a
c	$	/	$	=	n/a
d	$	/	$	=	n/a

Options for the row under numerator and denominator: accounts receivable, cost of goods sold, currents assets, current liabilities, income before interest and taxes, interest expense, net income, net sales.

1b. Which company indicates the strongest ability to pay interest expense as it comes due?

Company A, b, c, or d?

Expert Solution

1a) Computation of Times interest earned
Company	Net Income(Loss)	Income tax	Interest expense	Operating profit (EBIT)	Times interest earned
	a	b	c	d=a+b+c	e=d/c
a	$ 102,000.00	$ 25,500.00	$ 37,740.00	$ 165,240.00	4.38	times
b	$ 96,600.00	$ 34,776.00	$ 34,776.00	$ 166,152.00	4.78	times
c	$ 86,700.00	$ 36,414.00	$ 34,680.00	$ 157,794.00	4.55	times
d	$ 105,100.00	$ 50,448.00	$ 7,357.00	$ 162,905.00	22.14	times

Note	Times interest earned= Operating income(EBIT)/interest expense
Note	Operating income(EBIT)= Net income+ Income tax+ Interest expense

1b) Company d indicates the srongest ability to pay interest expense as it comes due.

ekkarill92 answered 2 years ago

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