Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the appl

Question

3 years ago

11

Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the appl

icable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.
a. True
b. False

Business

1 answer:

ra1l [238] · Answer 1 · 2022-05-02T06:58:09+03:00

Answer:

a. True

Explanation:

TIE means times interest earned, whose formula is provided below:

Times interest earned=EBIT/interest expense

With the above formula, we can determine the EBIT (earnings before interest and tax)

Depending on the company's cost structure, when the operating costs are added to EBIT, the result would be the company's sales revenue

EBIT=Sales revenue-operating costs

Sales revenue=EBIT+operating costs