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Jones Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?
a. 7.36
b. 7.69
c. 7.91
d. 8.25
e. 8.42

Companies a and b have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio, and, therefore, a higher interest expense. Which of the following statements is CORRECT?
a. Company HD has a higher ROA.
b. Company HD has a higher times interest earned (TIE) ratio.
c. Company HD has more net income.
d. Company HD pays less in taxes.
e. Company HD has a lower equity multiplier

If the Treasury yield curve is downward sloping, how would the yield to maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-bill?
a. The yield on a 10-year bond would be less than that on a 1-year bill.
b. The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium.
c. It is impossible to tell without knowing the coupon rates of the bonds.
d. The yields on the two securities would be equal.
e. It is impossible to tell without knowing the relative risks of the two securities.

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Solution Summary

This solution is comprised of a detailed explanation to answer what was the EBITDA coverage ratio, which of the following statements is CORRECT, and how would the yield to maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-bill.

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Jones Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?

a. 7.36

b. 7.69

c. 7.91

d. 8.25

e. 8.42

Answer: A

EBITDA coverage ratio = ($385,000 + $20,000)/($10,000 + $25,000 + ...

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