PLease solve this for me as I got all answers incorrect. Please give steps also. Thanks
3 Answer(s)
Ankit
In this question we have given that interest coverage is 1.3X so Binny has taught us Interest coverage is nothing but Operating Income/Debt so in this case
Operating Income/10(Debt) = 1.3
So Operating Income = 13 Crore
Now they are expecting 10% decrease in the Operating Income by next year so OI for the next year is 13 - 13*.10 = 11.7 Crore
Now you have already having interest expense of 10 Crore so company can pay more 1.7 Crore as a interest expense max without going bankrupt. 1.7 Crore interest expense indicates company can take 17 Crore more loan @10% interest.
Hope you got it!
May 21 2013 11:32 PM
Operating Income/10(Debt) = 1.3
So Operating Income = 13 Crore
Now they are expecting 10% decrease in the Operating Income by next year so OI for the next year is 13 - 13*.10 = 11.7 Crore
Now you have already having interest expense of 10 Crore so company can pay more 1.7 Crore as a interest expense max without going bankrupt. 1.7 Crore interest expense indicates company can take 17 Crore more loan @10% interest.
Hope you got it!