A firm has total interest charges of $12,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. What is the firm's times-interest-earned ratio?

My work:

1.Net profit = $1 mil X .06

Net profit = $60k

PBT = $60k / .6

PBT = $100k

EBIT = 100k + $12k

EBIT = $112k

TIE Ratio = 112k / 12k

TIE Ratio = 9.33

Question 2)Pisa Company (PC) has $20 million in total invested operating capital, and its WACC is 10%. PC has sales of $10.00 million, operating costs of $6.0 million, interest expense of $2.0 million. The company tax rate is 40%. What is PC's EVA?

My work:

1.EVA = NOPAT - Annual dollar cost of capital

= EBIT (1 - T ) - (Total invested capital X After-tax percentage cost of capital)

(10 - 6) X (1-.4) = 2.4

2.4 X (.1 X 20) = 4.8 million.

Answer rating: 100% (QA)

Your work on both questions seems correct Lets break it down Question 1 TimesInteres... View the full answer