Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: 23BP_b (page 82)

The Lancaster Corporation’s income statement is given below.

b. What would be the fixed-charge-coverage ratio?

Lancaster corporation

Sales

\(246,000

Cost of goods sold

122,000

Gross profit

\)124,000

Fixed charges (other than interest)

27,500

Income before interest and taxes

\(96,500

Interest

21,800

Income before taxes

\)74,700

Taxes (35%)

26,145

Income after taxes

$48,555

Short Answer

Expert verified

The fixed charge coverage of Lancaster Corporation is 2.52.

Step by step solution

01

Fixed charges coverage ratio 

Fixed charges coverage ratio is computed to know the company’s ability to cover its fixed expenses out of the profits.

02

Calculation of Fixed charges coverage ratio 

Fixedchargescoverageratio=Earningbeforeinterestandtaxes+FixedchargesbeforetaxInterestexpense+Fixedchargesbeforetax=$96,500+$27,500$21,800+$27,500=2.52

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows

Sales\( 2790000
Cost of goods sold1790000
Gross profits\) 1000000
Selling and administrative expenses302000
Operating profits\( 698000
Interest Expense54800
Income before tax\) 643200
Taxes 30%192960
Income after tax$ 450240

b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?

If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and forwhat reasons?

Baker Oats had an asset turnover of 1.6 times per year.

b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?

Botox Facial Care had earnings after taxes of \(370,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was \)31.50. In 20X2, earnings after taxes increased to \(436,000 with the same 200,000 shares outstanding. The stock price was \)42.00

a. Compute earnings per share and the P/E ratio for 20X1. The P/E ratio

equals the stock price divided by earnings per share.

b. Compute earnings per share and the P/E ratio for 20X2.

c. Give a general explanation of why the P/E ratio changed.

Discuss some financial variables that affect the price-earnings ratio
See all solutions

Recommended explanations on Business Studies Textbooks

Change Management

Read Explanation

Influences On Business

Read Explanation

Business Operations

Read Explanation

Business Development

Read Explanation

Business Case Studies

Read Explanation

Strategic Direction

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free