Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / MPI Incorporated has $3 billion in assets, and its tax rate is 40%
MPI Incorporated has $3 billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is 13%, 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.
Computation of the times-interest-earned ratio (TIE ratio):-
BEP ratio = EBIT / Total assets
13% = EBIT / $3
EBIT = 13% * $3
= $0.39 billion
ROA = Net income / Total assets
6% = Net income / $3
Net income = 6% * $3
= $0.18 billion
Net income = (EBIT - Interest expense) * (1 - Tax rate)
$0.18 = (0.39 - Interest expense) * (1 - 40%)
0.39 - Interest expense = $0.18 / 60%
Interest expense = $0.39 - $0.30
= $0.09 billion
TIE = EBIT / Interest expense
= $0.39 / $0.09
= 4.33 times
