Question

Ugh inc.'s net income for the most recent year was $16,185. the tax rate was 40 percent. the firm paid $3,906 in total interest expense and deducted $2,585 in depreciation expense. what was the cash coverage ratio for the year

Answer 1

The cash coverage ratio will be calculated as follows:
Earnings before interest and tax (EBIT)+Interest expense
EBIT will be:
16,185/(1-0.4)=16185/0.6=26,975
thus:
EBIT+Tax+Depreciation
=26,975+3906+2585
=33466
next
33466/interest expenses
=33466/3906
=8.5678
Therefore we conclude that cash was 8.5678 times interest expense.