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Lever Age pays an 8% rate of interest on $ 10 million of outstanding debt with face

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Lever Age pays an 8% rate of interest on $ 10 million of outstanding debt with face value $10 million. The firm's EBIT was $1 million.

a. What is times interest earned?

b. If depreciation is $200,000, what is cash coverage?

c. If the firm must retire $300,000 of debt for the sinking fund each year, what is its "fixed-payment cash-coverage ratio" (the ratio of cash flow to interest plus other fixed debt payments)?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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a Interest expense 08 X 10 million 80000...View the full answer


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Fundamentals Of Corporate Finance

Fundamentals Of Corporate Finance

ISBN: 9781259087585

6th Canadian Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan, Gordon Roberts

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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