The Morrit Corporation has $600,000 of debt outstanding, and it paysan interest rate of 8% annually. Morrit’s annual sales are $3 million, itsaverage tax rate is 40%, and its net profit margin on sales is 3%. If thecompany does not maintain a TIE ratio of at least 5 to 1, then its bankwill refuse to renew the loan, and bankruptcy will result. What is Morrit’sTIE ratio?
The Morrit Corporation has $600,000 of debt outstanding, and it paysan interest rate of 8% annually. Morrit’s annual sales are $3 million, itsaverage tax rate is 40%, and its net profit margin on sales is 3%. If thecompany does not maintain a TIE ratio of at least 5 to 1, then its bankwill refuse to renew the loan, and bankruptcy will result. What is Morrit’sTIE ratio?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The Morrit Corporation has $600,000 of debt outstanding, and it pays
an interest rate of 8% annually. Morrit’s annual sales are $3 million, its
average tax rate is 40%, and its net profit margin on sales is 3%. 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 Morrit’s
TIE ratio?
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