Answered: TnT has $16billion in assets, and its…

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TnT has $16billion in assets, and its tax rate is 40%. Its BEP ratio is 10% and its ROA is 5%. What is its TIE ratio?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section: Chapter Questions

Problem 7P

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Question

TnT has $16billion in assets, and its tax rate is 40%. Its BEP ratio is 10% and its ROA is 5%. What is its TIE ratio?

Expert Solution

Step 1

TIE refers to times-interest-earned ratio. TIE ratio measures the ability of a firm to pay off its debt obligations.

Step 2

The formula used to calculate BEP (Basic Earnings Power) ratio is:

Step 3

The formula to calculate return on assets (ROA) is:

Step 4

Substituting the values, we get;

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