What will be interest Coverage Ratio, when 20% Long term Debt is 10,00,000, Tax Rate 40% and Net profit After Tax is ₹6,00,000.

6 Times

The correct answer is option (3) : 6 Times.

Interest coverage ratio = Net Profit before Interest and Tax / Interest on long-term debt
                                  = 12,00,000/2,00,000
                                  = 6 times

* Net profit after tax = 6,00,000
Tax rate = 40%
Profit before tax = 6,00,000 x 100/60
                        = ₹10,00,000

* Interest = 10,00,000 x 20/100
                = 2,00,000

* Profit before interest and tax = 10,00,000 + 2,00,000
                                             = 12,00,000