The long-term debt section of the balance sheet of the Queen Annes Lace Corporation appears as

QUESTION

The long-term debt section of the balance sheet of the Queen Annes Lace Corporation appears as follows:91/4%mortgage bonds$2,500,000123/8%second mortgage bonds1,500,000101/4%debentures1,000,000141/2%subordinated debentures1,000,000$6,000,000If the average earnings before interest and taxes of the company is $1.5 million and all debt is long term, what is the overall interest coverage?
Interest Expense 91/4%mortgage bonds $2,500,000 231250 (9.25 % on 2500,000) 123/8%second mortgage bonds 1,500,000 185625 (12.375 % on 1500,000) 101/4%debentures 1,000,000 102500 (10.25% on 1000,000) 141/2%subordinated debentures 1,000,000 145000 (14.50 % on 1000,000)

000,000 $664,375 Interest coverage ratio = Earnings before Interest and Taxes / Interest Expense Interest coverage ratio = 1500,000 / 664,375 Interest coverage ratio = 2.2578 times

ANSWER:

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