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MPI Incorporated has $7 billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is 8%, and its return on assets (ROA) is 3%. What is MPI's times-interest-earned (TIE) ratio? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer:

Times interest earned (TIE) = 2.67

Explanation:

EBIT = $7 bllion x 8% = $560,000,000

ROA = net income / total assets

3% = net income / $7,000,000,000

net income = $7,000,000,000 x 3% =  $210,000,000

earnings before taxes = net income / (1 - tax rate) = $210,000,000 / 60% = $350,000,000

if EBIT = $560,000,000 and EBT = $350,000,000, then interests = EBIT - EBT = $560,000,000 - $350,000,000 = $210,000,000

Times interest earned (TIE) = EBIT / interest expense = $560,000,000 / $210,000,000 = 2.67