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    company's fixed charge coverage

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    Use the financial statements below to answer questions 1-6 that follow. Be sure to show your work and to indicate your final answers clearly. For ratios, indicate whether the answer is in percent (%), times (x), dollars ($), or some other units, and round to two decimal places. Assume the company uses a 360 day year for accounting and finance purposes. The company has no preferred stock.

    Balance Sheet
    Cash $ 20,000
    Marketable Securities 80,000
    Accounts Receivable 1,000,000
    Inventory 3,500,000
    Gross Plant & Equipment 5,000,000
    Less: Accumulated Depreciation 2,000,000
    Net Plant & Equipment 3,000,000
    Total Assets $7,600,000

    Accounts Payable $1,000,000
    Accrued Expenses 200,000
    Notes Payable (Current) 800,000
    Long Term Bonds (at 10% interest) 2,000,000
    Common Stock (100,000 shares, par $10) 1,000,000
    Retained Earnings 2,600,000
    Total Liabilities and Stockholders' Equity $7,600,000

    Income Statement

    Sales (80% on credit) $9,000,000
    Fixed Costs 2,400,000
    Variable Costs (@20% of price) 1,800,000
    EBIT $4,800,000
    Interest Paid 800,000
    EBT $4,000,000
    Taxes (@ 40%) 1,600,000
    Net Income (EAT) $2,400,000
    Dividends 400,000
    Increase in Retained Earnings $2,000,000

    Note: Fixed costs include annual lease expense of $200,000 and annual depreciation of $600,000. The company is obligated to make annual principal payments of $250,000.

    1. What is the company's break-even point, in sales dollars?

    2. What is the company's cash break-even point, in sales dollars?

    3. What is the company's current ratio?

    4. What is the company's total asset turnover?

    5. What is the company's debt-to-assets ratio?

    6. What is the company's fixed charge coverage?

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    Solution Summary

    What is the company's debt-to-assets ratio?