The Valley Corporation has $500,000 of debt outstanding, and itpays an interest rate of 12%...

The Valley Corporation has $500,000 of debt outstanding, and it pays an interest rate of 12% annually. Valley's annual sales are $3 million, its average tax rate is 35%, and its net profit margin on sales is 6%. What is Valley's TIE ratio?

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Expert Solution

Net Profit = 6% * 3 million = 180000

Interest amount = 12% * 500000 = 60000

PBT = 180000 / (1 - 0.35) = 276923.08

EBIT = PBT + Interest

= 336923.08

TIE = EBIT/Interest = 336923.08 /60000 = 5.62 Answer

jeff jeffy answered 2 years ago

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