t: Chapter 4 Homework, part 2 -graded Assignment Score: 0.00 Save Submit Assignm

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t: Chapter 4 Homework, part 2 -graded Assignment Score: 0.00 Save Submit Assignment for Grading Question 2of6 Check My Work O Click here to read the eBook: Debt Management Ratios TIE AND ROIC RATIOS The W.C. Pruett Corp. has $350,000 of interest-bearing debt outstanding, and it pays an annual interest and common equity, so it has no preferred stock. Its annual sales are $1.89 million, its average tax rate is o rate of 11%. In addition, it has $600,000 of common stock on its balance sheet. It finances with only debt l 40%, and its profit margin is 7%, what are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places. TIE ROIC Check My Work Oe Icon Key Question 2 of 6 Sive Save Submit Assignment for Grading

Explanation / Answer

Times Interest Earned Ratio = EBIT/interest Expense

EBIT = net Income + Interest + Taxes

Net Income = 7% of sales = .07* 1890000 = $132300

Interest = 11% of 350000 = $38500

Earning before tax = Net Income/(1 - tax rate) = 132300/.6 = $220500

TIE = (220500 + 38500)/38500 = 6.72

ROIC = (Net Income - Dividend)/Total capital

Total capital = 350000 + 600000 = $950000

ROIC = 132300/950000 = 13.93%

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