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

Use the following information from separate companies at hrough f:

	Net Income (Loss)			Interest Expense		Income Taxes
a.	$	168,000		$	72,240	$	42,000
b.		162,600			66,666		58,536
c.		171,100			10,266		82,128
d.		142,800			55,692		59,976
e.		109,200			32,760		41,496
f.		(47,040	)		57,389		0

Compute times interest earned.

Solutions

Expert Solution


	Net Income(Loss)	Interest Ex	Income Tax
a.	1,68,000	72,240	42,000
b.	1,62,600	66,666	58,536
c.	1,71,100	10,266	82,128
d.	1,42,800	55,692	59,976
e.	1,09,200	32,760	41,496
f.	-47,040	57,389	0



	Company	A	B	C	D	E	F
	Net Income(Loss)	1,68,000	1,62,600	1,71,100	1,42,800	1,09,200	-47,040
	Add: Income Tax	42,000	58,536	82,128	59,976	41,496	0
	Income Before Taxes	2,10,000	2,21,136	2,53,228	2,02,776	1,50,696	-47,040
	Add: Interest Expense	72,240	66,666	10,266	55,692	32,760	57,389
	Earning Before Interest & Taxes	2,82,240	2,87,802	2,63,494	2,58,468	1,83,456	10,349	EBIT

	Times Interest Ratio=EBIT/Interest Ex
	Company	A	B	C	D	E	F
	Earning Before Interest & Taxes	282240	287802	263494	258468	183456	10349
	Interest Expense	72,240	66,666	10,266	55,692	32,760	57,389
	Times Interest Ratio=EBIT/Interest Ex	3.91	4.32	25.67	4.64	5.60	0.18

	Company C has the best ability

ekkarill92 answered 1 year ago

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