Which of the Following Statements Is Not Correct

question 34

Multiple Choice

Which of the following statements is not correct?

• A)A ratio that indicates a firm's long-term,debt-paying ability from the income statement view is the times interest earned.
• B)Some of the items on the income statement that are excluded in order to compute times interest earned are interest expense,income taxes,and unusual or infrequent items.
• C)Capitalized interest should be included with interest expense when computing times interest earned.
• D)Usually,the highest times interest coverage in the most recent five-year period is used as the primary indication of the interest coverage.
• E)In the short run,a firm can often meet its interest obligations,even when the times interest earned is less than 1.00.

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Definitions:

Equal Annual Amounts

A term generally used in loan repayments or amortization schedules where payments are made in consistent amounts over the term of the loan.

Compounded Annually

A method of calculating interest where the calculated interest is added to the principal at the end of each year, subsequently affecting the calculation for the following year.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Annuity Due

A type of annuity payment where payments are made at the beginning of each period, instead of at the end, which is common in standard annuities.