Question

#12 unanswered Caddyshack Productions incorporated is seeking to take out a new loan from Spackler Bank and Trust. The loan will be for $500,000.00 and pay a 6.00% annual interest rate. Before this loan, Caddyshack was paying $25,000.00 in interest per year. The company will use the loan to expand business. Judd Smails, the CEO, reported that the current EBIT for Caddyshack is $150,000.00. With the expansion, the EBIT will increase to $200,000.00 not_submitted Attempts Remaining: Infinity What is the TIE ratio for Caddyshack prior to the loan? Submit Answer format: Number: Round to: 2 decimal places. #13 unanswered Caddyshack Productions incorporated is seeking to take out a new loan from Spackler Bank and Trust. The loan will be for $500,000.00 and pay a 6.00% annual interest rate. Before this loan, Caddyshack was paying $25,000.00 in interest per year. The company will use the loan to expand business. Judd Smails, the CEO, reported that the current EBIT for Caddyshack is $150,000.00. With the expansion, the EBIT will increase to $200,000.00. not_submitted Attempts Remaining: Infinity What is the projected TIE ratio for Caddyshack post loan? Submit Answer format: Number: Round to: 2 decimal places.

Answer 1

TIE Ratio = EBIT/Interest Expense

Prior to loan = 150,000/25000

= 6 times

TIE post loan = 200,000/(25000+500,000*6%)

= 3.6363 times