A firm has net income of $4,238 and interest expense of $898.The tax rate is 35 percent.What is the firm's times interest earned ratio?
A)7.33
B)7.26
C)5.38
D)8.26
E)9.33

Question

Quizplus · Accepted Answer

The times interest earned (TIE) ratio is calculated as (Net Income + Interest Expense + Tax Expense) / Interest Expense. First, calculate the tax expense: Tax Expense = Net Income * Tax Rate = $4,238 * 0.35 = $1,483.30. Then, calculate the TIE ratio: TIE = ($4,238 + $898 + $1,483.30) / $898 = 8.26.

A Firm Has Net Income of $4,238 and Interest Expense