Zoom Car Corporation (ZCC) plans to purchase approximately 100 vehicles on December 31, 2015, for $2.2 million, plus 10 percent total sales tax. ZCC expects to use the vehicles for 5 years and then sell them for approximately $440,000. ZCC anticipates the following average vehicle use over each year ended December 31:

	2016	2017	2018	2019	2020
Miles per year	15,000	20,000	13,000	13,000	5,000

To finance the purchase, ZCC signed a 5-year promissory note on December 31, 2015, for $1.98 million, with interest paid annually at the market interest rate of 5 percent. The note carries loan covenants that require ZCC to maintain a minimum times interest earned ratio of 3.0 and a minimum fixed asset turnover ratio of 1.0. ZCC forecasts that the company will generate the following sales and preliminary earnings (prior to recording depreciation on the vehicles and interest on the note). (For purposes of this question, ignore income tax.)

(in 000s)	2016		2017		2018		2019		2020
Sales Revenue	$	2,200	$	2,700	$	3,000	$	3,100	$	3,200
Income before Depreciation and Interest Expense		1,100		1,300		1,500		1,600		1,700

Required:
1.	Calculate the amount of interest expense that would be recorded each year.

2.	Calculate the depreciation expense that would be recorded each year, using the following depreciation methods:

a) Straight line

b) Double-declining-balance

c) Units-of-production

3. Using your answers to requirements 1 and 2, determine net income and the two loan covenant ratios in each year, assuming the company chooses the following depreciation methods (a) Straight-line (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) Worksheet 2016 2017 2018 2019 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio (b) Double-declining-balance (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) 2016 2017 2018 2019 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio (c) Units-of-production (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) 2016 2017 2018 2019 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio