Lever Age pays an 10% rate of interest on $10.5 million of outstanding debt with face value $10.5 million. The firm’s EBIT was $1.5 million.

Lever Age pays an 10% rate of interest on $10.5 million of outstanding debt with face value $10.5 million. The firm’s EBIT was $1.5 million.

a. What is its times interest earned?



b. If depreciation is $250,000, what is its cash coverage ratio?

 
Explanation
a.
Interest expense = 0.10 × $10 million = $1,050,000
Times interest earned = $10,500,000 / $1,050,000 = 1.43

b.

Cash coverage ratio =	$1.5 million + 250,000	= 1.67
	$1,050,000