A Firm Has Total Interest Charges of $10,000 Per Year

question 87

Multiple Choice

A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is:

• A)16 times.
• B)10 times.
• C)7 times.
• D)11 times.
• E)20 times.

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Definitions:

Stockholders' Equity

The residual interest in the assets of an entity after deducting its liabilities, representing the ownership interest of the shareholders.

Fees Earned

Income earned through the delivery of services.

Wages Expense

An account representing the total cost of labor paid to employees, typically recorded over a specific accounting period.

Dividends

Payments made by a corporation to its shareholder members from the company's earnings.