Suppose a firm wants to maintain a specific TIE ratio.It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs.With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.

Question

Quizplus · Accepted Answer

tIE = EBIt/Interest = (Sales - Op cost)/(Debt ×Interest rate).If we know the op.costs, the amount of debt, and the interest rate, then we can solve for the sales level required to achieve the target tIE.

Suppose a Firm Wants to Maintain a Specific TIE Ratio