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