MPI Incorporated has $9 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 11%, and its return on assets (ROA) is 7%. What is MPI's times-interest-earned (TIE) ratio

TIE = 6.6 times

Explanation:

Total Assets = $9 billion = $9,000,000,000

Basic Earning Power Ratio (BEP) = 11%

Return on Assets = 7%

tax rate 25%

Calculate Earning before interest and Tax using formula of BEP

BEP = Earning before interest and Tax / Total Assets

11% = Earning before interest and Tax / $9,000,000,000

Earning before interest and Tax = $9,000,000,000 x 11%

Earning before interest and Tax = $990,000,000

Calculate Net Income by using following formula

Return on Assets = Net income / Total Assets

7% = Net Income / $9,000,000,000

Net Income = $9,000,000,000 x 7% = $630,000,000

Net Income after interest and before tax = $630,000,000 x (100/75) = $840,000,000

Interest Expense = $990,000,000 - 840,000,000 = $150,000,000

Times Interest Earned Ratio = Earning before interest and Tax / Interest expenses

Times Interest Earned Ratio = 990,000,000 / 150,000,000

TIE = 6.6 times