In: Finance
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?
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