The Interest Coverage Ratio

question 13

Multiple Choice

The interest coverage ratio:

• A)Is computed by dividing total liabilities by annual interest expense.
• B)Is computed by dividing liquid assets by annual required interest payment.
• C)Indicates the percentage of total assets that are financed with borrowed money.
• D)Measures the number of times the annual interest expense could be covered by annual income from operations.

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Definitions:

Quantity

The amount or number of a material or immaterial entity that is considered separately.

Subsidy

A financial contribution granted by a government or organization to support a business, industry, or activity, making it more affordable or viable.

Market Equilibrium

A state in the market where the quantity demanded by consumers equals the quantity supplied by producers, leading to a stable price for a good or service.

Socially Optimal Level

A state in which resources are allocated in the most efficient way possible, maximizing societal welfare or benefit.