Thomson Trucking has $15 billion in assets, and its tax rate is 25%. Its basic earning...

Thomson Trucking has $15 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 15%, and its return on assets (ROA) is 6.25%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.

Expert Solution

EBIT = Total assets * Basic earning power ratio
= $15 billion * 15%
= $2.25 billion

Net income = Total assets * ROA
= $15 billion * 6.25%
= $0.9375 billion

EBT = Net income / (1 - tax rate)
= $0.9375 billion / (1 - 0.25)
= $1.25 billion

Interest = EBIT - EBT
= $2.25 billion - $1.25 billion
= $1 billion

Times interest earned ratio = EBIT / Interest expense
= $2.25 billion / $1 billion
= 2.25

Times interest earned ratio = 2.25

jeff jeffy answered 2 years ago

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