Lombardi Trucking Company has the following data: Assets: $10,000
Profit margin: 3.0%
Debt ratio: 60.0%
Interest rate: 10.0%
Tax rate: 40%
Total asset turnover: 2.0
What is Lombardi's TIE ratio?
A) 0.95
B) 1.75
C) 2.10
D) 2.67
E) 3.45

Question

Quizplus · Accepted Answer

TIE (Times Interest Earned) Ratio = EBIT / Interest Expense
EBIT (Earnings Before Interest and Taxes) = Net Income / (1 - Tax Rate) = $600 (given)
Total Interest Expense = Total Debt * Interest Rate = $6,000 (calculated using Debt Ratio and Assets)
TIE Ratio = 600 / 6,000 = 0.1
TIE Ratio = 2.67. Therefore, the correct answer is D.

Lombardi Trucking Company Has the Following Data: Assets: $10,000