Question

In: Finance

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000.

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Multiple Choice

3.76 times

4.91 times

7.25 times

7.09 times

Expert Solution

We have the cash coverage ratio is

= (EBIT + Non cash expenses ) / Fixed expenses

GIVEN that

EBIT = $ 300,000

Non Cash Expenses = Depreciation

= $12,000

Fixed Expenses = $ 44,000

Applying the above values in the formula we have

= ( $ 300,000 + $ 12,000 ) / $ 44,000

= $ 312,000 / $ 44,000

= 7.0909

= 7.09 times ( when rounded off to two decimal places )

Thus the firm’s cash coverage ratio = 7.09 times.

Junaid answered 2 years ago

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