Question

1. The Awesome Fun Conglomerate has earnings before interest and taxes (EBIT) of $58,218 and net income (NI) of $4,042. The tax rate is 24 percent. What is the times interest earned ratio? A. 0.08 B. 1.10 C. 8.90 D. 2.49 E. 1.26

2. Global Logistics has sales of $783,200, cost of goods sold of $312,900, and inventory of $174,315. What is the inventory turnover rate? A. 17.37 times B. .9 times C. 2.71 times D. 3.4 times E. 1.79 times

3. Global Logistics has sales of $783,200, cost of goods sold of $312,900, and inventory of $174,315. How long on average does it take Global Logistics to sell its inventory? A. 203 days B. 89 days C. 725 days D. 37 days E. 25 days

Answer 1

1. The times interest earned ratio is computed as shown below:

= EBIT / Interest expenses

Interest expense is computed as follows:

EBIT - Interest expense = EBT

EBIT - Interest expense = Net Income / (1 - tax rate )

$ 58,218 - Interest expense = $ 4,042 / (1 - 0.24)

Interest expense = $ 52,899.57895

So, the times interest earned ratio will be as follows:

= $ 58,218 / $ 52,899.57895

= 1.10 Approximately

So, the correct answer is option B.

2. The inventory turnover rate is computed as shown below:

= Cost of goods sold / Inventory

= $ 312,900 / $ 174,315

= 1.79 times Approximately

So, the correct answer is option E i.e. 1.79

3. The number of inventory days is computed as shown below:

= ( Inventory / Cost of goods sold ) x 365 days

= ( $ 174,315 / $ 312,900) x 365 days

= 203 days Approximately

So, the correct answer is option A i.e. 203 days

Feel free to ask in case of any query relating to this question