5. Problem 4.09 (BEP, ROE, and ROIC) eBook Problem Walk-Through Broward Manufacturing recently reported the following information:...

5. Problem 4.09 (BEP, ROE, and ROIC)

eBook Problem Walk-Through

Broward Manufacturing recently reported the following information:

Net income	$768,000
ROA	8%
Interest expense	$268,800
Accounts payable and accruals	$1,000,000

Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

BEP: %

ROE: %

ROIC: %

( I will defently give you a thumbs up) please can you help me with these .

Solutions

Expert Solution

Particulars	Amount ($)
Net Income (a)	7,68,000
Return on Assets (b)	8%
Tax Rate (c )	25%
Interest Expenses (d)	2,68,800
Accounts payable and accruals (e )	10,00,000
Debt in percent of invested capital (f)	40%
Equity in percent of invested capital (g)	60%

Total Assets (h) = (a)/(b)	96,00,000

Invested Capital (i) = (h) - (e )	86,00,000

Debt (j) = (i)*(f)	34,40,000

Equity (k) = (i)*(g)	51,60,000

Return on Equity (l) = (a)/(k)	14.88%

Earnings before Taxes (m) = (a)/(1-0.25)	10,24,000

Earnings before Interest & Tax (n) = (m) + (d)	12,92,800

Net Operating Profit after Tax (o) = (n)* (1-0.25)	9,69,600

Return on Invested Capital (p) = (a)/(i)	8.93%

Basic Earning Power (q) = (n)/(h)	13.47%

jeff jeffy answered 2 years ago

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