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