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In the past year, TVG had revenues of $3.06 million, cost of goods sold of $2.56 million, and depreciation expense of $156,560. The firm has a single issue of debt outstanding with book value of $1.06 million on which it pays an interest rate of 8%. What is the firm’s times interest earned ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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ahmedgodtrust

Answer:

Earnings before interest and tax = $3,060,000 - $2,560,000 - $156,560

Earnings before interest and tax = $343,440

Interest expense = 8% x $1,060,000

Interest expense = $84,800

Times interest earned ratio = Earnings before interest and tax/Interest expense

Times interest earned ratio = $343,440/$84,800

                                             = 4.05 times

Explanation:

Times interest earned ratio is the ratio of earnings before interest and tax to interest expense. In this case, there is need to calculate earnings before interest and tax as shown above. we also need to calculate interest paid on debt. Thereafter, we will divide earnings before interest and tax by interest expense(interest on debt).

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