Culver Inc. has earnings after interest but before taxes of $300. The company's times interest earned ratio is 7.00. Calculate the company's interest charges.

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Culver Inc. has earnings after interest but before taxes of $300. The company's times interest earned ratio is 7.00. Calculate the company's interest charges.


Here,
Time Interest Earned (TIE) is 7
Formula for TIE is EBIT/I

We take Interest as X for our calculation purpose:

Putting into the formula as above:

7 = [EBT 300 + X] / X

So, 7X = 300 + X

7X - X = 300

6X = 300

X = 300/6

Or, X = 50


So, Interest Charges were 50. (The Final Answer you are looking for)


Now to prove,

EBT 300
Interest 50
EBIT 350


So, Interest Cover is: EBIT/Interest

or 350/50 = 7

Clear??

Regards,

Arunav