Question

Calculate Intereste Coverage Ratio from the following:
Net profit after tax = 120000
12% long term debt = 2000000
Tax rate 40%.
​

Answer 1

Answer: 1.833 Times

Explanation: Interest Coverage Ratio= EBIT/Interest  ,[where EBIT is Earning before Interest and Tax].

Earnings before Tax= Net Profit after Tax + Tax Paid

                                 = ₹1,20,000*100/60

                                 = ₹2,00,000

Now,

EBIT = EBT + Interest Paid

        = ₹2,00,000 + 12%of ₹2000000

        = ₹4,40,000

So, ICR = EBIT/Interest

            = ₹4,40,000/₹2,40,000

            = 1.833 Times.

Answer 2

Interest Coverage Ratio = 1.83333

Explanation:

Given:

Net profit after tax = 120,000

12% long term debt = 2,000,000

Tax rate = 40% = 40/100 = 0.40

Interest Coverage Ratio = ?

Computation of Interest :

Interest = 2,000,000 × 12%

Interest = 240,000

Profit before tax = 120000 × (100/60)

Profit before tax = 200,000

EBIT = 200,000 + 240,000 = 440,000

Computation of Interest Coverage Ratio:

Interest Coverage Ratio = EBIT / Interest

Interest Coverage Ratio = 440,000/ 240,000

Interest Coverage Ratio = 1.83333

Learn more:

https://brainly.in/question/14119590