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A firm has sales of $4,740, costs of $2,540, interest paid of $169, and depreciation of...

A firm has sales of $4,740, costs of $2,540, interest paid of $169, and depreciation of $473. The tax rate is 35 percent. What is the cash coverage ratio?

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Answer #1

Earnings before Interest & Taxes(EBIT) = Sales - Costs - Depreciation

EBIT = $4740 - $2540 - $473

EBIT = $1727

- Cash Coverage Ratio = (EBIT + Non-Cash expenses)/Interest Expenses

where, Non-Cash expenses = Depreciation = $473

Cash Coverage Ratio = ($1727 + $473)/$169

Cash Coverage Ratio = 13.02 times

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