Chapter 11, Problem 3ADM

A.

To determine

Times-Interest-Earned ratio: It is the ratio that quantifies a business ability to pay interest expense. It is calculated as shown below:

$\begin{array}{l}\text{Times-interest-}\\ \text{earned ratio}\end{array}\}=\frac{\text{Income}\text{before}\text{income}\text{tax}+\text{Interest expense}}{\text{Interest expense}}$

To Compute: Times-interest-earned ratio for each year.

B.

To determine

To plot: the graph with the four points and the years in the horizontal axis.   

C

To determine

To interpret: the trend in the ratio from the graph.

D.

To determine

To Explain: the reason for the significant increase in the interest expense.