By NEAS - 8/1/2018 9:45:38 PM
FA Module 7 Interest coverage ratio reverse practice exam questions
(The attached PDF file has better formatting.)
A firm has
● an effective tax rate of 10%
● an interest coverage ratio of 5.5
● a fixed charge coverage ratio of 4.7
● net income of 229
Question 7.1: Tax expense
What is the firm’s tax expense?
Answer 7.1: 229 × 10% / (1 – 10%) = 25.44
(tax expense = net income × effective tax rates / (1 – effective tax rate)
Question 7.2: Interest expense
What is the firm’s interest expense?
Answer 7.2: (229 + 25.44) / (5.5 – 1) = 56.54
interest expense = (net income + tax expense) / (interest coverage ratio – 1)
Question 7.3: Other fixed charges
What are the firm’s other fixed charges (besides interest expense)?
Answer 7.3: (229 + 25.44 – 56.54 × (4.7 – 1) ) / (4.7 – 1) = 12.23
(Other fixed charges = (net income + tax expense – interest expense × (fixed charge coverage ratio – 1) ) / (fixed charge coverage ratio – 1) )
|
|