The Karson Transport Company currently has net operating income of $500,000 and pays interest expense of $200,000.
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The Karson Transport Company currently has net operating income of $500,000 and pays interest expense of $200,000. The company plans to borrow $1 million on which the firm will pay 10 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm’s net operating income by $400,000 a year.
a. What is Karson’s times interest earned ratio before the loan is taken out and the investment is made?
b. What effect will the loan and the investment have on the firm’s times interest earned ratio?
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Related Book For
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin
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