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first & second drop down options are both the same: 6.00, 3.00, 7.00, 3.60 The times-interest-earned (TIE) ratio shows how well a firm can cover
first & second drop down options are both the same: 6.00, 3.00, 7.00, 3.60
The times-interest-earned (TIE) ratio shows how well a firm can cover its interest payments with operating income. Compare the income statements of Sleepy Futon Inc. and Sweet Dog Manufacturing and calculate the TIE ratio for each firm. Sleepy Futon Inc. Income Statement For the Year Ended on December 31 (Millions of dollars) Net Sales 1400 Variable costs 560 Fixed costs 490 Total Operating costs $1,050.00 Operating Income (or EBIT) 350 Less interest 50 Earnings before Taxes (EBT) 300 Less taxes (40%) 120 Net Income 180 Times Interest Earned (TIE) Sweet Dog Manufacturing Income Statement For the Year Ended on December 31 (Millions of dollars) Net Sales 1200 Variable costs 300 540 Fixed costs Total Operating costs $840.00 Operating Income (or EBIT) Less interest 360 60 Earnings before Taxes (EBT) 300 Less taxes (40%) 120 Net Income 180 Times Interest Earned (TIE) Complete the following statement, based on the calculations you have already made. Describe the relationship between the TIE ratios of the two companies. O Sweet Dog Manufacturing has a greater TIE ratio than Sleepy Futon Inc.. O The companies have equal TIE ratios. O Sleepy Futon Inc. has a greater TIE ratio than Sweet Dog Manufacturing. Which company is in better position to cover its interest payments, and therefore exhibits lower risk, than the other? O Sleepy Futon Inc. is in a better position to cover its interest payment. O Sweet Dog Manufacturing is in a better position to cover its interest payment. O Both companies are equally positioned to cover their interest paymentsStep by Step Solution
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