Helen Wiseman, owner of a convenience store, is meeting her banker and hopes to increase her working capital loan. She figures that an additional loan would increase her finance costs by an extra $10,000. Before seeing her banker, she asks her accountant to determine whether she would have difficulty servicing her debt with the additional finance costs.

With the following information, calculate the company's TIE ratio and fixed-charges coverage ratio. If you were the banker, would you approve the loan? Why or why not?

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Statement of Income 600,000 200 Revenue Cost of sales Gross profit Expenses Sales salaries Rent Office salaries Advertising Finance costs Total expenses Profit before taxes Income tax expense Profit for the year 400,000 (150,000) (20,000) (90,000) (23,000) (30,000) 313.000 87,000 25 62.000