Liabilites will inc ebit/ inc will increase? why? can somebody please explain. thanks
are you talking about a situation where co. had sold receivables to a SPE to remove it from the books, but now is being asked to bring it back on the books? If so - Original transaction would have been AR down, cash up. Now to adjust back: AR up, Liabs up. (The amount becomes a loan taken to bring it back on the books) EBIT / Interest will decrease I believe There will be no change to EBIT but Interest expense will go up - since the company will pay more interest on the loan amount.
I also think interest should go up resulting in a lower EBIT/INT but some how in by notes i have ratio increasing. well I will go with Int. increasing ----> lower ebit/int i have seen this SPE question 2x out of the 3 pactice exams that i took. this better be on the exam! CP- thanks!
CP you are correct…exam 3 morning of schweser q.15 int. goes up and interest coverage ratio goes down.