Question

find interest coverage ratio net profit after interest and tax 60000 rate of income tax 40000 10% mortgage loan 100000 10% debenture 100000​

Answer 1

Answer:

The Interest Coverage ratio is 6 times

Explanation:

The formula to compute Interest Coverage Ratio is:

ICR = Profit before tax and interest / Interest on Debt and on loan

     = 120,000 / 20,000

     = 6 times

Given,

Net Profit after interest and tax = 60,000

we will compute:

Interest on debenture and loan = 10% × 100,000 + 10% × 100,000

                                                     = 20,000                          

Net Profit before interest and tax = Net Profit after interest and tax + Income Tax + Interest on debenture and loan

= 60,000 + 40,000 + 20,000

= 120,000