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4 November, 15:00

Thomson Trucking has $12 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 18%, and its return on assets (ROA) is 4.25%. What is its times-interest-earned (TIE) ratio

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  1. 4 November, 15:17
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    1.46

    Explanation:

    Given that,

    Total Assets value = $12 billion

    Tax rate = 25%

    Basic earning power (BEP) ratio = 18%

    Return on assets (ROA) = 4.25%

    Net Earnings:

    = Return on assets * Total Assets value

    = 4.25% * $12 billion

    = $0.51 billion

    BEP = EBIT : Total Assets

    EBIT = 18% * $12

    = $2.16 billion

    Earnings before tax = Net income : (1 - tax)

    = $0.51 : (1 - 25%)

    = $0.68 billion

    Interest Expense = EBIT - EBT

    = $2.16 - $0.68

    = $1.48 billion

    Times-interest-earned (TIE) ratio:

    = EBIT : Interest expense

    = $2.16 : $1.48

    = 1.46
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