Question

6. Tibbs Inc. had the following data for the year ending 12/31/18: Net income = $600; Net operating profit after taxes (NOPAT) = $610; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,500. What was its return on invested capital (ROIC)?

           

a.         20.95%

b.         24.40%

c.         30.09%

d.         34.66%

11. LeCompte Corp. has $330,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $610,000, and its net income after taxes was $23,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 22%. What profit margin would LeCompte need in order to achieve the 22% ROE, holding everything else constant?

           

a.         13.665%

b.         12.115%

c.         11.934%

d.         10.775%

Answer 1

Q-) Formula for Return on Invested Capital(ROIC) =NOPAT/Total Operating Capital

ROIC = $610/$2500

ROIC = 24.40%

Option C

Q-11)

Total Assets Turnover = Sales/Total Assets = $610,000/$330,900

Total Assets Turnover = 1.8435 times

- Equity Multiplier = Asset/Equity = $330,900/$330,900 = 1

Note- As LeCompte Corp. uses only common equity capital (zero debt). Thus equity = Assets

-Return on Equity(ROE) LeCompte wanst to achive is 22%

As per DuPont Analysis:-

ROE = Profit Margin*Total assets turnover*Equity Multiplier

22% = Profit Margin*1.8435*1.00

Profit Margin = 11.934%

Option C