medium · Corporate Credit Analysis
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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