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The times-interest-earned (TIE) ratio shows how well a firm can cover its interest payments with operating inco Compare the income statements of Lost Pigeon Aviation
The times-interest-earned (TIE) ratio shows how well a firm can cover its interest payments with operating inco Compare the income statements of Lost Pigeon Aviation and Happy Turtle Transporters Inc. and calculate the T ratio for each firm Happy Turtle Transporters Inc. Income Statement For the Year Ended on December 31 (Millions of dollars) Lost Pigeon Aviation Income Statement For the Year Ended on December 31 (Millions of dollars) $850 213 383 $596 254 100 $154 $1,050 420 368 $788 262 60 $202 Net Sales Net Sales Variable costs Variable costs Fixed costs Fixed costs Total Operating Costs Operating Income (or EBIT) Total Operating Costs Operating Income (or EBIT) Less interest Less interest Earnings before Taxes (EBT) Earnings before Taxes (EBT) Less taxes (40%) Net Income Times Interest Earned (TIE) Less taxes (40%) Net Income Times Interest Earned (TIE) $92 $121 Complete the following statement, based on the calculations you have already made Describe the relationship between the TIE ratios of the two companies O Happy Turtle Transporters Inc. has a greater TIE ratio than Lost Pigeon Aviation O The companies have equal TIE ratios O Lost Pigeon Aviation has a greater TIE ratio than Happy Turtle Transporters Inc.. Which company is in better position to cover its interest payments, and therefore exhibits lower risk, than the o O Both companies are equally positioned to cover their interest payments O Lost Pigeon Aviation is in a better position to cover its interest payment. O Happy Turtle Transporters Inc. is in a better postion to cover its interest payment
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