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Question

From the following information calculate interest coverage ratio: Profit after Tax Rs. 2,70,000; Tax Rs. 30,000; Interest on long term funds Rs.50,000

A
5 times
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B
8 times
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C
7 times
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D
5.5 times
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Solution

The correct option is C 7 times
Interest coverage ratio is given by =EBIT/Interest Expense
Therefore in this case EBIT= 270000+30000+50000=350000
Interest expenses= 50000
Interest coverage ratio will be 7 times

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