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he Morris Corporation has $350,000 of debt outstanding, and it pays an interest rate of 9%...

he Morris Corporation has $350,000 of debt outstanding, and it pays an interest rate of 9% annually. Morris's annual sales are $1.75 million, its average tax rate is 35%, and its net profit margin on sales is 5%. If the company does not maintain a TIE ratio of at least 6 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer #1

Net profit margin=Net profit/Sales

Net profit=(1,750,000*5%)=$87500

EBIT(balance)(134,615.38+31500) 166,115.38(Approx).
Less:interest(350,000*9%) 31500
EBT(100%)(87500/0.65) 134,615.38
Less:tax@35%(134,615.38*35%) 47115.38
Net profit(65%) 87500

TIE ratio=EBIT/interest expense

=166,115.38/31500

=5.27(Approx).

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