Question

Ajax Corp's sales last year were $400,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio?
a. 3.00
b. 3.66
c. 2.46
d. 2.61
e. 3.48

Answer 1

Answer:

times-interest-earned ratio will be 3

So option (a) will be correct answer

Explanation:

We have given total sales = $400000

Operating expenses = $362500

And interest charges = $12500

So earning before interest and taxes = sales - operating cost = $400000 - $362500 = $37500

We have to find the times-interest-earned ratio

So times-interest-earned ratio is given by

times-interest-earned ratio = $\frac{earning\ before\ interest\ and\ taxes}{interest\ expense}=\frac{37500}{12500}=3$

So option (A) will be correct option