Alum Co. has $800,000 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan. Alum’s annual sales are $3,200,000, its average tax rate is 40%, and its net profit margin on sales is 6%. If the company does not maintain a times interest earned ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alum Co.’s current times interest earned ratio?

Alum Co. has $800,000 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan. Alum’s annual sales are $3,200,000, its average tax rate is 40%, and its net profit margin on sales is 6%. If the company does not maintain a times interest earned ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alum Co.’s current times interest earned ratio?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 10P: The Morrit Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8%...

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