Excel Online Structured Activity: ROE and ROIC Baker Industries, net income is $

Question

Excel Online Structured Activity: ROE and ROIC Baker Industries, net income is $23000, its interest expense is $6000, and its tax rate is 45%. Its notes payable equals $23000, long-term debt equals $70000, and common equity equals $240000. 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 ROIC

Explanation / Answer

ROE = Net Income / Common equity

ROE = 23000/240000

ROE = 9.58%

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Taxes = Net profit / (1-Tax rate) x Tax rate = 23000/(1-45%) x 45% = $18,818.18182

.

EBIT = Net profit + Taxes + Interest

EBIT = 23000 + 18818.18182 + 6000 = 47818.18182

.

ROIC = (EBIT x (1-Tax rate)) / (Equity + Debt - Notes payable)

ROIC = (47818.18182 x (1-45%)) / (240000 + 70000 - 23000)

ROIC = 9.16%

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