10% Long term Loan (SBI) = ₹10,00,000
Net profit after tax = ₹2,10,000
Tax rate = 30%
On the basis of the above details, Interest Coverage Ratio and Net Profit Before Interest and Tax will be:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) - 4 times, ₹4,00,000.
Interest on long term debts = 10,00,000 x 10/100
= ₹1,00,000
Profit after tax = ₹2,10,000
Tax rate = 30%
Profit before tax = 2,10,000 x 100/70
= ₹3,00,000
Profit before interest and tax = profit before tax + interest on debts
= 3,00,000 + 1,00,000
= ₹4,00,000
Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts
= 4,00,000/1,00,000
= 4 times