MPI Incorporated has $12 billion in assets, and its tax rate is 25%. Its basic earning...

Question

Question

MPI Incorporated has $12 billion in assets, and its tax rate is 25%. Its basic earning power (BEP) ratio is 9%, and its retur

business finance

Answer 1

Answer #1

EBIT = Total Assets * BEP = $12 billion * 0.09 = $1.08 billion

Net Income = Total Assets * ROA = $12 billion * 0.04 = $0.48 billion

EBT = Net Income / (1 - t) = $0.48 billion / (1 - 0.25) = $0.64 billion

Interest Expense = EBIT - EBT = $1.08 billion - $0.64 billion = $0.44 billion

TIE Ratio = EBIT / Interest Expense = $1.08 billion / $0.44 billion = 2.45

Answer 2

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