Question

MPI Incorporated has $12 billion in assets and its tax rate is 25%. its badic earning power (BEP) ratio is 10% and its return on assets (ROA) is 7%. what is MPI’s times-interest earned (TIE) ratio? do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Basic Earning Power = EBIT / Total Assets
0.10 = EBIT / $12,000 million
EBIT = $1,200 milllion

Return on Assets = Net Income / Total Assets
0.07 = Net Income / $12,000 million
Net Income = $840 million

Net Income = (EBIT - Interest Expense) * (1 - tax)
$840 million = ($1,200 million - Interest Expense) * (1 - 0.25)
$1,120 million = $1,200 million - Interest Expense
Interest Expense = $80 million

Times Interest Earned = EBIT / Interest Expense
Times Interest Earned = $1,200 million / $80 million
Times Interest Earned = 15 times