A Firm Has EBIT of $400,000 and Depreciation Expense of $20,000

question 112

Multiple Choice

A firm has EBIT of $400,000 and depreciation expense of $20,000. Fixed charges total $50,000. Interest expense totals $7,000. What is the firm's fixed-charge coverage ratio?

• A) 7.60 times
• B) 8.00 times
• C) 8.40 times
• D) 8.54 times

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Definitions:

Percentage of Sales Method

A financial forecasting model that assumes certain expenses and incomes will vary directly with sales.

Allowance for Doubtful Accounts

A contra-asset account that estimates the portion of accounts receivable which may not be collectible.

Bad Debts Expense

An expense account reflecting estimated uncollectible accounts receivable.

Percent of Sales Method

A forecasting technique used in finance to predict future variables such as assets, liabilities, and expenses, based on projected sales figures.