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ROE AND ROIC Baker Industries’ net income is $26,000, its interest expense is $5,000, and its...

ROE AND ROIC

Baker Industries’ net income is $26,000, its interest expense is $5,000, and its tax rate is 40%. Its notes payable equals $23,000, long-term debt equals $70,000, and common equity equals $240,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations.

ROE	%
ROIC	%

Expert Solution

1) Calculation of ROE

ROE = Net Income / Shareholder's Equity

= 26,000 / 240,000

= .1083

= 10.83%

1) Calculation of ROIC

ROIC = NOPAT / Invested Capital

NOPAT = POst tax EBIT

a	Net Income for the year	26,000.00
b	Add: Income Tax(26000/.6 *.4)	17,333.33
c	Income Before Income Tax (a+b)	43,333.33
d	Add: Interest	5,000.00
e	EBIT	48,333.33

NOPAT = 48,333.33*.6

= 28,999.998

Invested Capital = Equity + long term Debt

= 240,000+70,000

= 310,000

ROIC = NOPAT / Invested Capital

= 28,999.998 / 310,000

= .0935

= 9.35%

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