Question:
Suppose a firm desires to maintain a specific TIE ratio. The firm having known the level of its debt, the interest rate it will pay on that debt, and the applicable tax rate, the firm can then calculate the earnings level required to maintain its target TIE ratio. True or false?
Answer:
True
Times Interest Earned (TIE) is a ratio which measures the ability of an organization to pay its debt obligations. So If the firm knows the level of its debt, the interest rate it will pay on that debt, and the applicable tax rate, the firm can then calculate the earnings level required to maintain its target TIE ratio.
