MPI Incorporated has $9 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 12%, and its return on assets (ROA) is 6%. What is MPI's times-interest-earned (TIE) ratio? Do not round intermediate calculations. Round your answer to two decimal places.
Return on Assets = Net Income / Total Assets = 6%
Net Income / $9,000,000,000 = 6%
Net Income = $540,000,000
Basic Earning power = EBIT / Total Assets = 12%
EBIT / $9,000,000,000 = 12%
EBIT = $1,080,000,000
Earnings Before Taxes = Net Income / (1 - Tax rate)
= $540,000,000 / (1-25%)
= $720,000,000
Ineterest Expense = EBIT - Earnings Before Taxes
= $1,080,000,000 - $720,000,000
= $360,000,000
Times interest earned ratio = EBIT / Interest expense
= $1,080,000,000 / $360,000,000
= 3
Therefore, MPI's times interest earned ratio is 3
Interest Expense
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