What will be Interest Coverage Ratio, when 20\% Long term Debt is Rs. 10,00,000 , Tax Rate 40\% and Net profit After Tax is Rs. 6,00,000 . - Accountancy MCQ CUET Accountancy 2023 11 June Shift 3 2026 | ExamTest.live

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What will be Interest Coverage Ratio, when 20% Long term Debt is Rs. 10, 00, 000, Tax Rate 40% and Net profit After Tax is Rs. 6, 00, 000 .

Solution & Step-by-step Explanation

1. Calculate Interest Expense: Interest = 20% of 10, 00, 000 = Rs. 2, 00, 000 Calculate Net Profit Before Tax (NPBT): NPBT = \frac{Net Profit After Tax}{1 - Tax Rate} = \frac{6 , 00 , 000}{1 - 0.40} = \frac{6 , 00 , 000}{0.60} = Rs. 10, 00, 000 Calculate Net Profit Before Interest and Tax (NPBIT): NPBIT = NPBT + Interest = 10, 00, 000 + 2, 00, 000 = Rs. 12, 00, 000 Calculate Interest Coverage Ratio: Interest Coverage Ratio = \frac{NPBIT}{Interest} = \frac{12 , 00 , 000}{2 , 00 , 000} = 6 Times

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What will be Interest Coverage Ratio, when 20% Long term Debt is Rs. 10, 00, 000, Tax Rate 40% and Net profit After Tax is Rs. 6, 00, 000 .

5.4 Times

4 Times

6 Times

5.6 Times

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