Question

eBook Problem Walk-Through Thomson Trucking has $24 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 10%, and its return on assets (ROA) is 7.25%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places. X

Answer 1

BEP ratio = EBIT/Total Assets

10% = EBIT/$24000000000

EBIT = $24000000000*0.10

= $2400000000

ROA = Net income/Total Assets

7.25% = Net income/$24000000000

Net income = $24000000000*0.0725

= $1740000000

EBIT = (Net income + Interest expense)*(1+tax rate)

Net income + Interest expense = EBIT/(1+tax rate)

$1740000000 + Interest expense = $2400000000/(1+0.25)

Interest expense = $1920000000-$1740000000

= $180000000

Times-interest-earned ratio = EBIT/Interest expense

= $2400000000/$180000000

=13.33 times