Question
The Karson Transport Company currently has net operating income of $505,000and pays interest expense of $203,000. The company plans to borrow $1.04 million on which
The Karson Transport Company currently has net operating income of $505,000and pays interest expense of $203,000.
The company plans to borrow $1.04 million on which the firm will pay 12 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm's net operating income by $410,000 a year.
a. What is Karson's times interest earned ratio before the loan is taken out and the investment is made?
b. What effect will the loan and the investment have on the firm's times interest earned ratio?
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
14th edition
133879879, 978-0133879872
