Last year, Crystal Rock Holdings reported $510,000 of sales, $262,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $600,000 of bonds outstanding that carry a 7.0% interest rate, and its income tax rate was 40%. What was the firm's times-interest-earned (TIE) ratio? Your answer should be between 4.20 and 7.12, rounded to 2 decimal places, with no special characters.
Last year, Crystal Rock Holdings reported $510,000 of sales, $262,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $600,000 of bonds outstanding that carry a 7.0% interest rate, and its income tax rate was 40%. What was the firm's times-interest-earned (TIE) ratio? Your answer should be between 4.20 and 7.12, rounded to 2 decimal places, with no special characters.
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
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Transcribed Image Text:Last year, Crystal Rock Holdings reported $510,000 of sales, $262,500 of operating costs other than
depreciation, and $10,200 of depreciation. The company had $600,000 of bonds outstanding that carry a
7.0% interest rate, and its income tax rate was 40%. What was the firm's times-interest-earned (TIE) ratio?
Your answer should be between 4.20 and 7.12, rounded to 2 decimal places, with no special characters.
Expert Solution
Introduction
The times-interest-earned ratio is a financial ratio that represents the ability of a company to meet its cost of debt using the operating income. The cost of debt for a company is the interest expense payable on its outstanding debt obligation. Operating income refers to the income after adjustment of direct and indirect expenses along with the adjustment for non-cash expenses such as depreciation from the total revenue.
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