XYZ Company had Income from Operations of \$320,000 and Net Income of \$80,000. Interest Expense during the current period was \$40,000 and Notes Payable totaled \$400,000. What is the company's Times Interest Earned?

• A. 2x
• B. 6x
• C. 8x
• D. 10x

Answer: (C)

Verified step by step guidance

1. Understand the concept of Times Interest Earned (TIE) ratio, which measures a company's ability to meet its debt obligations based on its current income. The formula is: \( \text{TIE} = \frac{\text{Income from Operations}}{\text{Interest Expense}} \).
2. Identify the given values from the problem: Income from Operations is \$320,000 and Interest Expense is \$40,000.
3. Substitute the given values into the TIE formula: \( \text{TIE} = \frac{320,000}{40,000} \).
4. Simplify the fraction to find the Times Interest Earned ratio.
5. Interpret the result to understand how many times the company can cover its interest expense with its income from operations.