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Question

From the following details, calculate interest coverage ratio: Net Profit after tax Rs. 60,000; 15% Long-term debt 10,00,000; and Tax rate 40%.


  1. 1.64 times

  2. 1.67 times

  3. None of these

  4. 1.60 times


Solution

The correct option is B

1.67 times


Interest = 10,00,000 * 15% = 1,50,000
Net profit before tax = 60,000 / 60% = 1,00,000
Net profit before interest and tax = 1,00,000 + 1,50,000 = 2,50,000

Interest Coverage Ratio = 2,50,000/1,50,000

=1.67 times

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