8

Here are some data for five companies in the same industry:

	Company Code
	A	B	C	D	E
EBIT	28.00	68.00	208.00	14.00	246.00
Interest expense	7.00	17.00	52.00	4.00	3.00

a. Calculate a measure of times-interest-earned for the industry.

b. Calculate a measure of times-interest-earned for each company.

c. Calculate the average of the times-interest-earned ratios for the individual companies.

d. Does changing the method of calculation make a significant difference to the end result?

Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms:

	Sales	Interest Payment	Net Income	Assets at Start of Year
Federal Stores	$102	$6	$12	$52
Sara Togas	22	3	6	21.0

Assume tax rate is 35%.

a. Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for the two firms. (Do not round intermediate calculations. Round the sales-to-assets ratio answers to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.)

b. Now assume that the two companies merge. If Federal continues to sell goods worth $102 million, how will the three ratios change? (Do not round intermediate calculations. Round the sales-to-assets ratio answer to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.)