Thomson Trucking has $9 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 11%, and its return on assets (ROA) is 5.25%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.
EBIT = Basic Earning power ratio * Total assets = 0.11 * $9 billion = $0.99 billion
Net income = Total assets * Return on assets (ROA) = $9 billion * 0.0525 = $0.4725 billion
Earnings before tax = Net Income / (1 - Tax rate) = $0.4725 billion / (1 - 0.25) = $0.63 billion
Interest Expence = EBIT - EBT = $0.99 billion - $0.63 billion= $0.36 billion
Times-interest-earned (TIE) ratio = EBIT / Interest Expense
Times-interest-earned (TIE) ratio = $0.99 billion / $0.36 billion
Times-interest-earned (TIE) ratio = 2.75x
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