Lever Age pays a(n) 8% rate of interest on $10.3 million of outstanding debt with face value $10.3 million. The firm’s EBIT was $1.3 million.

Lever Age pays a(n) 8% rate of interest on $10.3 million of outstanding debt with face value $10.3 million. The firm’s EBIT was $1.3 million.

a.	What is times interest earned? (Round your answer to 2 decimal places.)

Times interest earned

b.	If depreciation is $230,000, what is cash coverage? (Round your answer to 2 decimal places.)

Cash coverage

c.	If the firm must retire $330,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.)

Fixed-payment cash-coverage ratio

Explanation:

a.

Interest expense = 0.08 × $10.3 million = $824,000

Times interest earned = $1,300,000/$824,000 = 1.58

b.

Cash coverage ratio =	$1,300,000 + $230,000	= 1.86
	$824,000

c.

Fixed payment coverage =	$1,300,000 + $230,000	= 1.33
	$824,000 + $330,000