Question

MPI Incorporated has $9 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 13%, and its return on assets (ROA) is 3%. What is MPI's times-interest-earned (TIE) ratio? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

BEP ratio = Earnings before interest and taxes (EBIT) / Total assets
13% = EBIT / 9000000000
EBIT = 13% * 9000000000	1170000000
ROA = Net income / Total assets
3% = Net income / 9000000000
Net income = 3% * 9000000000	270000000
Earnings before taxes (EBT) = Net income / ( 1 - Tax% ) = 270000000 / ( 1 - 25% )	360000000
Interest expense = EBIT - EBT = 1170000000 - 360000000	810000000
Times interest earned (TIE) = EBIT / Interest expense = 1170000000 / 810000000	1.44