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Dmitry_Shevchenko [17]
3 years ago
6

A firm has an operating profit (EBIT) of $600 on sales of $1,000. Interest expense is $250 and taxes are $120. What is the times

interest earned ratio?
Business
1 answer:
Nezavi [6.7K]3 years ago
8 0

Answer:

2.4 times

Explanation:

The formula to compute the times interest earned ratio is shown below:

Times interest earned ratio = (Earnings before interest and taxes) ÷ (Interest expense)

= $600 ÷ $250

= 2.4 times

In order to find out the times interest earned ratio, we divide the operating profit or earnings before interest and taxes by the interest expense so that it could come

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Answer: Option (b) is correct.

Explanation:

Given that,

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Interest paid = $3,000

Paid for a two-year insurance policy = $6,800

Income tax rate = 9%

Gross Margin = Revenues - Cost of Goods Sold

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Profit before tax = Gross Margin - Salaries - Insurance payment - Interest

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Net Income = Profit before tax - Tax at 9%

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