Thomson Trucking has $18 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 12%, and its return on assets (ROA) is 7%. What is its times-interest-earned (TIE) ratio?

9.82

Explanation:

Given that,

Assets = $18 billion

Tax rate = 35%

Basic earning power (BEP) ratio = 12%

Return on assets (ROA) = 7%

BEP = EBIT : Total Assets

12% = EBIT : $18 billion

EBIT = 12% * $18 billion

= $2.16 billion

ROA = Net Income : Total Assets

7% = Net Income : $18 billion

Net Income = 7% * $18 billion

= $1.26 billion

Earning before tax:

= Net income : (1 - tax)

= $1.26 : (1 - 0.35)

= $1.26 : 0.65

= $1.94 billion

Interest Expense:

= EBIT - EBT

= $2.16 billion - $1.94 billion

= $0.22 billion

Times interest earned ratio:

= EBIT : Interest expense

= $2.16 billion : $0.22 billion

= 9.82