Detroit Tire Company has pre-tax profits of $300. The company’s times-interest-earned ratio is 7.0. What is the company’s interest expense? a. $35 b. $38 b. $42 b. $50 I missed it at first.
300/7 = 42 CP
Dreary Wrote: ------------------------------------------------------- > Detroit Tire Company has pre-tax profits of $300. > The company’s times-interest-earned ratio is 7.0. > What is the company’s interest expense? > > a. $35 > b. $38 > b. $42 > b. $50 > > I missed it at first. Definitely b! times interest earned is EBIT/interest expense. So you need to add back the interest to pretax profits, which gives you: (300+ int)/int = 7 so int = 300/6 = $50 what should have been d)
D
D=$50 A bit tricky.
that was a good question. so easy to confuse EBT and EBIT …