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In a recent year, Day Corporation had net income of $150,000, interest expense of $30,000, and tax expense of $20,000. What was Day Corporation’s times interest earned for the year? a. 7.50 b. 5.00 c. 4.00 d. 6.67

Answer :

Answer:

Option (D) is correct.

Explanation:

EBIT(balance) = Net income + interest expense + tax expense

                       = $150,000 + $30,000 + $20,000

                       = $200,000

Earning before taxes = EBIT(balance) - interest

                                   = $200,000 - $30,000

                                   = $170,000

Net income = Earning before taxes - tax expense

                    = $170,000 - $20,000

                    = $150,000

Times interest earned = EBIT ÷ Interest

                                     = $200,000 ÷ $30,000

                                      = 6.67

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