Alum Co. has $800,000 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan. Alum’s annual sales are $3,200,000, its average tax rate is 40%, and its net profit margin on sales is 6%. If the company does not maintain a times interest earned ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alum Co.’s current times interest earned ratio?
Alum Co. has $800,000 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan. Alum’s annual sales are $3,200,000, its average tax rate is 40%, and its net profit margin on sales is 6%. If the company does not maintain a times interest earned ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alum Co.’s current times interest earned ratio?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Alum Co. has $800,000 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan. Alum’s annual sales are $3,200,000, its average tax rate is 40%, and its net profit margin on sales is 6%. If the company does not maintain a times interest earned ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alum Co.’s current times interest earned ratio?
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