QUESTION 10
Ajax Corp's sales last year were $720,000, its operating costs were $364,500, and its interest charges were $50,500. What was the firm's times-interest-earned (TIE) ratio?
QUESTION 3
If a firm's profit margin is 15%, total assets turnover is 1.57, and its debt-to-assets ratio (i.e. liabilities-to-assets) is 0.4, what is the firm's ROE?
1.
Earnings before interest and taxes=Sales-Operating costs
(720,000-364500)=$355,500
Hence TIE ratio=Earnings before interest and taxes/interest expense
=(355,500/50500)
which is equal to
=7.04(Approx).
2.debt-to-assets ratio=debt/assets
Hence debt=0.4assets
Total assets=debt+equity
Hence equity=(1-0.4)=0.6total assets
Equity multiplier=Total assets/equity
=Total assets/0.6Total assets
=1.667(Approx).
ROE=profit margin*Total asset turnover*Equity multiplier
=(15*1.57*1.667)
which is equal to
=39.25%
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