The chief operating officer of the Wisconsin Corporation is considering the effe

Question

The chief operating officer of the Wisconsin Corporation is considering the effect of depreciation on company ROI. In the most recent year, net operating profit after taxes was $34, 100,000 and investment (total assets of $452,000,000 less noninterest-bearing current liabilities of $20, 300,000) was $431, 700,000. Assuming that total assets will decline each year by 5 percent due to depreciation of plant and equipment but NOPAT will remain constant, calculate ROI for each of the next five years. (Round answers to 2 decimal places, e.g. 15.25%.)

Explanation / Answer

Year1 Year2 Year3 Year4 Year5 NOPAT      34,100,000      34,100,000      34,100,000      34,100,000      34,100,000 Investment    410,115,000    389,609,250    370,128,788    351,622,348    334,041,231 ROI = NOPAT/Investments 8.31% 8.75% 9.21% 9.70% 10.21%

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