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3. Platek Corporation has total interest charges of $50,000 per year, sales of $400,000, a tax...

3. Platek Corporation has total interest charges of $50,000 per year, sales of $400,000, a tax rate of 40 percent, and a net profit margin of 15 percent. What is the firm’s times interest earned ratio?

a. 2x

b. 3x

c. 4x

d. 6x

e. none of the above

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Homework Answers

Answer #1

- Net Income = Sales*net profit margin

= $400,000*15%

Net Income = $60,000

- Operating Income(or EBIT) = Net Income/(1- tax rate) + Interest expenses

= $60,000/(1-0.40) + $50,000

EBIT = $150,000

Formula for: Times Interest earned = EBIT/Interest Expeses

Firm's Times Interest earned = $150,000/$50,000

Firm's Times Interest earned = 3 times

Option B

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