Question

MPI Incorporated has $5 billion in assets, and its tax rate is 35%. Its basic earning...

MPI Incorporated has $5 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 9%, and its return on assets (ROA) is 4%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

What is MPI's times-interest-earned (TIE) ratio? Round your answer to two decimal places.

Homework Answers

Answer #1

Answer:

Assets = $5 billion = $5,000 million

Return on assets = 4%

Net Income = Asset * Return on assets = 5000 * 4% = $200 million

Basic earning power (BEP) ratio = 9%

EBIT = Assets * Basic earning power ratio = 5000 * 9% = $450 million

Tax rate = 35%

Pretax Income = Net Income / (1 - tax rate) = 200/ (1 -35%) = $307.69 million

Interest Expense = EBIT - Pretax Income = 450 - 307.69 = $142.31

MPI's times-interest-earned (TIE) ratio = EBIT / Interest expense = 450 / 142.31 = 3.16

MPI's times-interest-earned (TIE) ratio = 3.16

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