Answer:
3.5
Explanation:
Computation for the firm’s times interest earned ratio
Revenues$ 2.95 million
Cost of goods sold$ 2.45 million
Depreciation expense$ 178,000.00
Book values of Debt outstanding$ 1.15 million
Interest rate8.00
First step is to calculate for the EBIT
Using this formula
EBIT= Revenues -(Cost of goods sold +Depreciation expense$ 178,000.00)
EBIT=$2,950,000-($2,450,000+$178,000)
EBIT=$2,950,000- $2,628,000
EBIT=$322,000
Second step is to find the Interest
Using this formula
Interest =Debt outstanding with book value ×Interest rate
Let plug in the formula
Interest =$1,150,000×8%
Interest =$92,000
Now let find the firm’s times interest earned ratio
Using this formula
Firm’s times interest earned ratio=EBIT/INTEREST
Where,
EBIT=$322,000
INTEREST=$92,000
Let plug in the formula
Firm’s times interest earned ratio=$322,000/$92,000
Firm’s times interest earned ratio =3.5
Therefore the firm’s times interest earned ratio will be 3.5
