Capital structure analysis) The Karson Transport Company currently has net operating income of $503,000 and pays interest expense of $195,000. The company lans to borrow $1.19 million on which the firm will pay 10 percent interest. The borrowed money will be used to finance an investment that is expected to increase the m's net operating income by $403,000 a year. . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? . What effect will the loan and the investment have on the firm's times interest earned ratio? ... . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? he times interest earned ratio is times. (Round to two decimal places.)

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
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Capital structure analysis) The Karson Transport Company currently has net operating income of $503,000 and pays interest expense of $195,000. The company
lans to borrow $1.19 million on which the firm will pay 10 percent interest. The borrowed money will used to finance an investment that is expected to increase the
m's net operating income by $403,000 a year.
. What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
. What effect will the loan and the investment have on the firm's times interest earned ratio?
. What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
he times interest earned ratio is
times. (Round to two decimal places.)
Transcribed Image Text:Capital structure analysis) The Karson Transport Company currently has net operating income of $503,000 and pays interest expense of $195,000. The company lans to borrow $1.19 million on which the firm will pay 10 percent interest. The borrowed money will used to finance an investment that is expected to increase the m's net operating income by $403,000 a year. . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? . What effect will the loan and the investment have on the firm's times interest earned ratio? . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? he times interest earned ratio is times. (Round to two decimal places.)
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Interest earned ratio

The ratio that helps determine a company's ability to repay its debt is called the interest income ratio. This ratio helps the company to decide the amount of loans to be taken and determine the number of times the company can repay debt from its EBIT. 

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