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wariber [46]
3 years ago
13

Thomson Trucking has $18 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 12%, and its return

on assets (ROA) is 7%. What is its times-interest-earned (TIE) ratio?
Business
1 answer:
valina [46]3 years ago
5 0

Answer:

9.82

Explanation:

Given that,

Assets = $18 billion

Tax rate = 35%

Basic earning power (BEP) ratio = 12%

Return on assets (ROA) = 7%

BEP = EBIT ÷ Total Assets

12% = EBIT ÷ $18 billion

EBIT = 12% × $18 billion

        = $2.16 billion

ROA = Net Income ÷ Total Assets

7% = Net Income ÷ $18 billion

Net Income = 7% × $18 billion

                   = $1.26 billion

Earning before tax:

= Net income ÷ (1 - tax)

= $1.26 ÷ (1 - 0.35)

= $1.26 ÷ 0.65

= $1.94 billion

Interest Expense:

= EBIT - EBT

= $2.16 billion - $1.94 billion

= $0.22 billion

Times interest earned ratio:

= EBIT ÷ Interest expense

= $2.16 billion ÷ $0.22 billion

= 9.82

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