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My question concerns the fixed charge coverage ratio. The formula in our text says the fixed coverage charge ratio=
(EBIT+Lease payments)/(Interest charges+Lease payments+Sinking fund payments/(1-tax rate))

I understand the three outflows in the denominator which we are checking the coverage on from inflows (EBIT). Why is the lease payment outflow in both the numerator and denominator?

Thank you.

Tom
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