Q Search this course E and ROIC Video cel Online Structured Activity: ROE and RO

Question

Q Search this course E and ROIC Video cel Online Structured Activity: ROE and ROIC ker Industries' net income is $27000, its interest expense is ances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online fle below. Open the swer the questions below SS000 and its tax rate is 35%. Its notes payable equals $24000, long term t equals $75000 and con one anty equals Sasoo. The firm and perform the required analysis to hat are the firm's ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations OE oic Check My Work Reset Problem

Explanation / Answer

ROE

11.02%

ROIC

8.79%

Explanation;

ROE = Net income / Common equity

Net income = $27000

Common equity = $245000

Now let’s put the values in above given formula;

ROE ($27000 / $245000)

ROE = 11.02%

ROIC = EBIT (1 – T) / Total invested capital

EBIT will be calculated as follow;

EBT + Interest

EBT = $27000 / (1 – 0.35)

EBT = $41538.46

EBIT = EBT + Interest

EBIT = $41538.46 + $5000

EBIT = $46538.46

Now, let’s calculate total invested capital;

Total invested capital ($245000 + $75000 + $24000) = $344000

ROIC = $46538.46 (1 – 0.35) / $344000

ROIC = $30250 / $344000

ROIC = 8.79%

ROE

11.02%

ROIC

8.79%

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