One Way Analysts Measure the Ability of a Company to Meet

question 52

Multiple Choice

One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have.For Tempo Solutions Corporation, $10,000 of bonds paying 6.5% annually is outstanding.Income before interest and taxes is $7,000.How would Tempo Solutions Corporation calculate the times interest earned ratio?

• A) Income before interest and taxes divided by the interest expense.
• B) Income before interest and taxes divided by carrying value of the bonds outstanding.
• C) Income before interest and taxes divided by the face rate on bonds.
• D) Face amount of bonds divided by income before interest and taxes.

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Definitions:

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