ADM Pty Ltd has Total Assets of R850 000. Debt ratio for the firm is 80% of which 70% is long term liabilities. The Asset turnover is 6, net profit margin is 12%, the interest rate is 8% and tax rate is 40% for the firm.  Calculate 1. Interest expense for the firm  2. Earnings before interest and tax  3. The coverage ratio

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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ADM Pty Ltd has Total Assets of R850 000. Debt ratio for the firm is 80% of which 70% is long term liabilities. The Asset turnover is 6, net profit margin is 12%, the interest rate is 8% and tax rate is 40% for the firm. 

Calculate

1. Interest expense for the firm 

2. Earnings before interest and tax 

3. The coverage ratio 

Expert Solution
Step 1

Total assets = R 850000

Debt ratio = 80%

Long term debt is 70% of total debt.

Asset turnover = 6

Net profit margin = 12%

 

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