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26 April, 09:26

Pva inc.'s net income for the most recent year was $16,085. the tax rate was 40 percent. the firm paid $3,896 in total interest expense and deducted $2,575 in depreciation expense. what was the cash coverage ratio for the year?

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  1. 26 April, 09:43
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    cash coverage ratio:

    Earnings Before Interest and Taxes + Non-Cash Expenses / Interest Expense

    16,085 / (1-tx) = 16,085 / 0.60 = 26,808.33
    add back interest of 3,896 and depreciation of 2,575 = 26,808.33 + 3896 + 2575 = 26,808.33

    solve:

    26,808.33 / 3896
    so cash was 6.88 x interest expense
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