Respuesta :
Answer:
TIE Ratio = 7.731
Explanation:
Provided information we have,
TIE Ratio = [tex]\frac{EBIT}{Interest}[/tex]
Interest = $300,000 [tex]\times[/tex] 8% = $24,000
Net profit = Sales [tex]\times[/tex] Net profit margin = $1.5 million [tex]\times[/tex] 7% = $105,000
Now this profit is after tax,
Profit - 35% of profit = $105,000
65% of profit = $105,000
Profit before taxes = [tex]\frac{105,000}{0.65} = 161,538.46[/tex]
Profit before taxes + Interest = Earnings before interest and taxes = $161,538.46 + $24,000 = $185,538.46
Therefore,
TIE Ratio = [tex]\frac{185,538.46}{24,000} = 7.731[/tex]
Therefore, the bank will renew the loan as the TIE Ratio is more than 5.
