A Firm Has Operating Profit of $200,000 After Deducting Lease

question 71

Multiple Choice

A firm has operating profit of $200,000 after deducting lease payments of $40,000. Interest expense is $60,000. What is the firm's fixed charge coverage?

• A) 4.00x
• B) 5.00x
• C) 3.33x
• D) 1.71x

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Definitions:

Inventory Management

The supervision of non-capitalized assets (inventory) and stock items to ensure an adequate supply without excessive oversupply.

Important

A characteristic denoting something of great significance or value in a specific context or situation.

ABC Analysis

A method of categorizing inventory into three classes, with 'A' items being of high value, 'B' items of moderate value, and 'C' items of lower value, to prioritize inventory management efforts.

Pareto's Law

Also known as the 80/20 rule, it states that for many events, roughly 80% of the effects come from 20% of the causes, applicable in various contexts including economics and business.