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balandron [24]
3 years ago
13

A firm has net income of $4,238 and interest expense of $898. the tax rate is 35 percent. what is the firm's times interest earn

ed ratio?
Business
1 answer:
Nikolay [14]3 years ago
7 0

<u>Calculation of firm's times interest earned ratio:</u>

The times interest earned ratio can be calculated with the help of following formula:

Times interest earned ratio = Income before Interest and Tax / Interest Expense


Interest expense is given $898, and Income before Interest and Tax can be calculated as follows:

Net Income $4,238

Add: Tax (4238*35/65) $2,282

Income before tax  =$6520

Add: Interest Expense $898

Income before Interest and Tax = $7,418


Hence, Times interest earned ratio = 7418 /898 = <u>8.26 times</u>




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