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Manor Corporation TIE

The document provide the solution with full calculations of the TIE ratio for Manor Corporation

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Manal Elkhoshkhany
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33 views1 page

Manor Corporation TIE

The document provide the solution with full calculations of the TIE ratio for Manor Corporation

Uploaded by

Manal Elkhoshkhany
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The Manor Corporation has $500,000 of debt outstanding, and it pays an interest rate of 10%

annually: Manor's annual sales are $2M, its average tax rate is 30%, and its net profit margin on
sales is 5%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will
refuse to renew the loan and bankruptcy will result What is Manor's TIE ratio?

TIE = EBIT/INT

Interest = $500,000  0.10 = $50,000.


Net income = $2,000,000  0.05 = $100,000.
Pre-tax income = $100,000 / (1 - T)
= $100,000/0.7 = $142,857.

EBIT = $142,857 + $50,000 = $192,857.


TIE = $192,857/$50,000 = 3.86.

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