The Tarpon Corp has $325,000 of debt outstanding, and it pays an interest rate of 7% annually. Its annual sales are $900,000, its average tax rate is 25%, and its net profit margin on sales is 10%. If the company does not maintain a times interest earned (TIE) ratio of greater than 5 to 1, then its bank will refuse to renew the loan and bankruptcy will result. Holding sales constant, at what operating (EBIT) margin would the bank refuse to renew the loan? 17.50% 15.17% 16.25% 14.06%

The Tarpon Corp has $325,000 of debt outstanding, and it pays an interest rate of 7% annually. Its annual sales are $900,000, its average tax rate is 25%, and its net profit margin on sales is 10%. If the company does not maintain a times interest earned (TIE) ratio of greater than 5 to 1, then its bank will refuse to renew the loan and bankruptcy will result. Holding sales constant, at what operating (EBIT) margin would the bank refuse to renew the loan? 17.50% 15.17% 16.25% 14.06%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 10P: The Morrit Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8%...

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