From the following data calculate Interest Coverage Ratio.

i. 12% Debentures - ₹10,00,000
ii. Net Profit after tax - ₹60,000
iii. Tax rate - 40%

1.83 times

The correct answer is option 3- 1.83 times.

Net profit after tax = 60,000
Tax rate = 40% means ₹60,000 PROFIT IS 60%
60% = 60,000
100% = 60,000/60 X 100
          = 1,00,000
Net profit before tax = 1,00,000

Interest on debentures = 12% of 10,00,000
                                      = ₹1,20,000

Net Profit before interest and Tax = Net profit before tax + interest on debentures
                                                     = 1,00,000 + 1,20,000
                                                     = 2,20,000

Interest Coverage Ratio = Net Profit before interest and tax / Interest on Long-term Debts
                                        = 2,20,000/ 1,20,000
                                        = 1.83 times