Answer:
Rounded to two decimal places, MPI's Times-Interest-Earned (TIE) ratio is approximately 5.45.
Explanation:
The Times-Interest-Earned (TIE) ratio can be calculated using the formula:
TIE = Earnings Before Interest and Taxes (EBIT) / Interest Expense
To find the TIE ratio, we need to determine the EBIT and the Interest Expense.
Given:
Total Assets (TA) = $3 billion
Tax Rate = 40%
Basic Earning Power (BEP) ratio = 12%
Return on Assets (ROA) = 5%
We can calculate the EBIT using the ROA and the BEP ratio:
ROA = Net Income / Total Assets
5% = Net Income / $3 billion
Net Income = 0.05 * $3 billion
Net Income = $150 million
BEP ratio = EBIT / Total Assets
12% = EBIT / $3 billion
EBIT = 0.12 * $3 billion
EBIT = $360 million
Now, we need to find the Interest Expense. We can use the formula:
Interest Expense = EBIT / TIE
We want to find the TIE ratio, so we rearrange the formula:
TIE = EBIT / Interest Expense
Given that the Tax Rate is 40%, we can calculate the Interest Expense as follows:
Taxable Income = EBIT - (EBIT * Tax Rate)
Taxable Income = $360 million - ($360 million * 0.40)
Taxable Income = $360 million - $144 million
Taxable Income = $216 million
Interest Expense = Taxable Income - Net Income
Interest Expense = $216 million - $150 million
Interest Expense = $66 million
Now, we can calculate the TIE ratio:
TIE = EBIT / Interest Expense
TIE = $360 million / $66 million
TIE ≈ 5.45
Rounded to two decimal places, MPI's Times-Interest-Earned (TIE) ratio is approximately 5.45.