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    Question

    A company's interest coverage ratio (EBIT/Interest) is

    3. If interest increases while EBIT unchanged, what happens to ratio and credit risk?
    A Ratio increases; credit risk reduces Correct Answer Incorrect Answer
    B Ratio decreases; credit risk increases Correct Answer Incorrect Answer
    C Ratio unchanged; credit risk unchanged Correct Answer Incorrect Answer
    D Ratio increases; credit risk increases Correct Answer Incorrect Answer
    E Not determinable Correct Answer Incorrect Answer

    Solution

    Higher interest reduces coverage, implying higher credit risk.

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