Click here to read the eBook: Debt Management Ratios TIE AND ROIC RATIOS The w..

Question

Click here to read the eBook: Debt Management Ratios TIE AND ROIC RATIOS The w.. Pruett Corp. has $500,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 11%. In addition, it has $800,000 of common stock on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $1.45 million, its average tax rate is 30%, 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. 5.14 ROIC 9.69% Hide Feedback Incorrect

Explanation / Answer

TIE = EBIT/INT

=200000/55000

=3.64

ROIC

ROIC =NOPAT /Invested Capital

NOPAT is equal to EBIT x (1 – tax rate)

=(200000*(1-.30))/(500000+800000)

=10.77%

Profit 7% of sales 101500 Add Tax 101500*30/70 43500 Add Interest 500000*0.11 55000 EBIT 200000

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