Karson transport company

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The Karson Transport Company currently has net operating income of $493,000 and pays interest of $203,000. The company plans to borrow $1.18 million on which the firm will pay 10 percent interest.

 

The borrowed money will be used to finance an investment that is expected to increase the firm’s net operating income by $405,000 a year.

 

 

 

  1. What is Karson’s times interest earned before the loan is taken out and the investment is made.

  2. What effect will the loan and the investment have on the firm’s times interest earned ratio?

 

 

 

The times interest earned ratio is ___________ times.

 

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