Question

For the most recent year, Seether, Inc., had sales of $447,000, cost of goods sold of $218,400, depreciation expense of $58,100, and additions to retained earnings of $50,300. The firm currently has 32,000 shares of common stock outstanding, and the previous year’s dividends per share were $1.35.
  
Assuming a 30 percent income tax rate, what was the times interest earned ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Times interest earned _______ times

Answer 1

Total dividend = Shares of common stock outstanding * Dividend per share = 32000 * 1.35	43200
Net income = Total dividend + Addition to retained earnings = 43200 + 50300	93500
Earnings before tax = Net income / (1-tax%) = 93500 / (1-30%)	133571.43
Earnings before interest and tax = Sales - Cost of goods sold - Depreciation = 447000 - 218400 - 58100	170500
Interest expense = Earnings before interest and tax - Earnings before tax = 170500 - 133571.43	36928.57
Times interest earned = Earnings before interest and tax / Interest expense = 170500 / 36928.57	4.62	times