A firm has sales of $215,600, costs of $124,800, interest paid of $3,600, and depreciation of $11,400. the tax rate is 34 percen

Question

Inessa [10]

2 years ago

14

A firm has sales of $215,600, costs of $124,800, interest paid of $3,600, and depreciation of $11,400. the tax rate is 34 percen

t. what is the value of the cash coverage ratio?

Business

1 answer:

Tju [1.3M] · Answer 1 · 2023-06-30T21:24:15+03:00

Cash Coverage ratio indicates if a firm has enough cash to pay of its interest expenses. The ideal ratio to be maintained by a firm is 1:1. This can be given by the following formula:

Cash Coverage Ratio= $\frac{Earnings before Interest and Tax+Depreciation }{Interest Expense}$

Cash Coverage Ratio= $\frac{215600-124800+11400}{3600}$

Cash Coverage Ratio=28.38

Assumption: Cost includes Depreciation, thus depreciation is added back, To find Cash Profits before Interest and Taxes.