The Robinson Corporation has $900,000 of debt outstanding, and it pays an interest rate of 8% annually. Robinson annual sales are $3.6 million, its average tax rate is 35%, and its net profit margin on sales is 4%. If the company does not maintain a TIE ratio of at least 6 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Robinson TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
Profit margin=Net income/Sales
Net income=(3.6 million*4%)=$144,000
| EBIT(balance)(221,538.46+72,000) | 293,538.46(Approx). |
| Less:interest expense(900,000*8%) | 72,000 |
| EBT(100%)(144,000/0.65) | 221,538.46 |
| Less:tax@35%(221,538.46*35%) | 77538.46 |
| Net income(65%) | 144,000 |
TIE=EBIT/interest expense
=293,538.46/72,000
=4.08(Approx).
The Robinson Corporation has $900,000 of debt outstanding, and it pays an interest rate of 8%...