ROE and ROIC Baker Industries, net income is $26000, its interest expense is $40
ID: 2811085 • Letter: R
Question
ROE and ROIC
Baker Industries, net income is $26000, its interest expense is $4000, and its tax rate is 45%. Its notes payable equals $24000, long-term debt equals $75000, and common equity equals $245000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet What are the firm's ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations. ROE ROICExplanation / Answer
Return on equity = Net Income / Total Equity
= $26,000 / $245000
= 10.61%
Return on equity is 10.61%.
Profit before tax = $26,000 / (1 - 45%)
= $47,272.73.
Profit before tax is $47,272.73.
EBIT = $47,272.73 + $4,000
= $51,272.73.
EBIT is $51,272.73.
NOPAT = $51,272.73 × (1 - 45%)
= $28,200.
NOPAT of comapny is $28,200.
Total Capital = $75,000 + 245,000
= $320,000
Total Capital is $320,000.
ROIC = NOPAT / Total capital
= $28,200 / $320,000
= 8.81%
ROIC is 8.81%.
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