Question

  Problem 4.18 (TIE Ratio)

eBook Problem Walk-Through

MPI Incorporated has $3 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 9%, and its return on assets (ROA) is 5%. What is MPI's times-interest-earned (TIE) ratio? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer 1

Basic earning power ratio = EBIT/ Total assets

9% = EBIT/ $3,000,000,000

EBIT = $27,000,000

ROA = Net income/ Total assets

5% = Net income/ $3,000,000,000

Net income = $15,000,000

We have reverse computed the numbers and found the value

Times interest earned ratio = EBIT/ Interest

Times interest earned ratio = 27,000,000/7,000,000

Times interest earned ratio = 3.857

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