Question

Thomson Trucking has $12 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 19%, and its return on assets (ROA) is 5.25%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.

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Answer 1

- Total Assets of thomsan trucking = $12 billion

Basic earning Power(BEP) Ratio = EBIT/Total Assets

0.19 = EBIT/$12 billion

EBIT = $2.28 billion

- Return on ASsets(ROA) = Net Income/Total Assets

0.0525 = Net Income/$12 billion

Net Income = $0.63 billion

- Income before tax = Net income/(1-Tax rate)

= $0.63 billion/(1-0.25)

= $0.84 billion

EBIT = Income before tax + Interest expenses

$2.28 billion = $0.84 billion + Interest expenses

Interest expenses = $1.44 billion

So, Times Interest earned ratio = EBIT/Interest Expenses

= $2.28 billion/$1.44 billion

= 1.58 times

So, its times-interest-earned (TIE) ratio is 1.58 times

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