Alumbat Corporation Has $800,000 of Debt Outstanding, and It Pays

Multiple Choice

Alumbat Corporation has $800,000 of debt outstanding, and it pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000; its average tax rate is 40 percent; and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alumbat's current TIE ratio?

A) 2.4
B) 3.4
C) 3.6
D) 4.0
E) 5.0