Monsto has 120$mil in total assets. its basic earning power is 12%, its times interest earned...

Monsto has 120$mil in total assets. its basic earning power is 12%, its times interest earned (TIE) ratio is 6. The tax is 35% What is its ROA?

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Expert Solution

EBIT = Basic earning power * Total assets
= 12% * $120 mil
= $14.4 mil

Interest expense = EBIT / Times interest earned
= $14.4 mil / 6
= $2.4 mil

EBT = EBIT - Interest expense
= $14.4 mil - $2.4 mil
= $12 mil

Net income = EBT * (1 - tax rate)
= $12 mil * (1 - 0.35)
= $7.8 mil

ROA = Net income / Total assets
= $7.8 mil / $120 mil
= 6.5%

ROA = 6.5%

jeff jeffy answered 2 years ago

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