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      Question

      If a company reports a DSCR of 2.5, which of the

      following reflects the correct interpretation?
      A Net worth is 2.5 Γ— debt Correct Answer Incorrect Answer
      B Assets are financed 2.5 Γ— by loans Correct Answer Incorrect Answer
      C Company generates 2.5 Γ— operating income for debt Correct Answer Incorrect Answer
      D Needs 2.5 Γ— more debt Correct Answer Incorrect Answer
      E Margin of safety is 2.5% Correct Answer Incorrect Answer

      Solution

      DSCR of 2.5 means the operating income is 2.5 times the debt service obligation.

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