Answer:
TIE = 6.6 times
Explanation:
Total Assets = $9 billion = $9,000,000,000
Basic Earning Power Ratio (BEP) = 11%
Return on Assets = 7%
tax rate 25%
Calculate Earning before interest and Tax using formula of BEP
BEP = Earning before interest and Tax / Total Assets
11% = Earning before interest and Tax / $9,000,000,000
Earning before interest and Tax = $9,000,000,000 x 11%
Earning before interest and Tax = $990,000,000
Calculate Net Income by using following formula
Return on Assets = Net income / Total Assets
7% = Net Income / $9,000,000,000
Net Income = $9,000,000,000 x 7% = $630,000,000
Net Income after interest and before tax = $630,000,000 x (100/75) = $840,000,000
Interest Expense = $990,000,000 - 840,000,000 = $150,000,000
Times Interest Earned Ratio = Earning before interest and Tax / Interest expenses
Times Interest Earned Ratio = 990,000,000 / 150,000,000
TIE = 6.6 times
