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16 March, 16:46

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

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  1. 16 March, 20:17
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    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
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Home » Business » 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
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