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The W.C. Pruett Corp. has $900,000 of interest-bearing debtoutstanding, and it pays an annual interest...

The W.C. Pruett Corp. has $900,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 10%. In addition, it has $800,000 of common stock on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $4.86 million, its average tax rate is 25%, and its profit margin is 6%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places.

Expert Solution

Net Income = Sales * Prodit Margin

= $ 4860000 * 6%

= $ 291600

EBT = Net Income / ( 1 - Tax Rate )

= $ 291600 / ( 1 - 0.25 )

= $ 291600 /0.75

= $ 388800

INt = Face Value of debt * int Rate

= $ 900000 * 10%

= $ 90000

EBIT = EBT + Int

= $ 388800 + $ 90000

= $ 478800

TIE Ratio = EBIT / INT

= $ 478800 / $ 90000

= 5.32

ROIC = Net Income / Capital Employed

Capital employed = Debt + equity

= $ 900000 + $ 800000

= $ 1700000

= $ 291600 / $ 1700000

= 0.1715 I.e 17.15%

jeff jeffy answered 2 years ago

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