medium · Corporate Credit Analysis fsa
An issuer extends the useful life of its manufacturing equipment from 10 to 15 years.
What is the immediate effect on the firm's interest coverage ratio (EBIT/Interest)?
- The ratio worsens because the assets are now being used less efficiently
- The ratio improves because annual depreciation expense decreases, raising EBIT
- The ratio improves because the company will likely incur less debt for new equipment
- The ratio is unaffected because interest coverage uses EBITDA, not EBIT
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More Corporate Credit Analysis fsa practice
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