Question

TIE RATIO

MPI Incorporated has $9 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 13%, and its return on assets (ROA) is 4%. What is MPI's times-interest-earned (TIE) ratio? Round your answer to two decimal places.

x

Answer 1

Net income = ROA * assets

Net income = 0.04 * 9,000,000,000

Net income = 360,000,000

EBIT = BEP * assets

EBIT = 0.13 * 9,000,000,000

EBIT = 1,170,000,000

EBT = Net income / (1 - tax)

EBT = 360,000,000 / (1 - 0.35)

EBT = 553,846,153.8

Interest = EBIT - EBT

Interest = 1,170,000,000 - 553,846,153.8

Interest = 616,153,846.2

Times interest earned ratio = EBIT / Interest

Times interest earned ratio = 1,170,000,000 / 616,153,846.2

Times interest earned ratio = 1.90