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QUESTION 10 Ajax Corp's sales last year were $720,000, its operating costs were $364,500, and its...

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?

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Answer #1

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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