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.
Answer & explanation
Correct answer: option 3
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