A company has interest expense of $4 million, sales revenue of $50 million, earnings before interest and taxes of $20 million, and an income tax rate ... Accounting MCQs | Accounting MCQs

A company has interest expense of $4 million, sales revenue of $50 million, earnings before interest and taxes of $20 million, and an income tax rate of 35%. This company has a times-interest-earned ratio of

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Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. Times interest earned is found by dividing earnings before interest and taxes (EBIT) by interest expense. Therefore, the times-interest-earned ratio is 5.0 ($20 million ÷ $4 million).