Reference no: EM1317417

Computation of profit margin and EBITDA coverage ratio

1.Burger Corp has $500,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $600,000, and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Burger need in order to achieve the 15% ROE, holding everything else constant?

a)8.00%

b)9.50%

c)11.00%

d)12.50%

e)14.00%

2. Rex Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?

a)7.36

b)7.69

c)7.91

d)8.25

e)8.42