Reading 20 Practice Problem 8

CFA Level II FRA
#1

Practice Problem 8:

Including the investment income the Interest coverage ratio is =(528+35)/35=16.085

Excluding the investment income the interest coverage ratio is =(528-21+35)/35=15.485

The coverage ratio decreases but the solutions say the answer is C ,“doesnt change”. Can anyone explain?

Even if the above numbers were driven by EBIT instead of NI, Wouldnt the investment from associated be subtracted from EBIT? Thanks!

#2

The investment does not get deducted from EBIT…hence its the same.

Net Income would be less by the amount of NI received from the investment in associate but not EBIT…

#3

Gotcha, Thanks!