ABC Corp has net income of $75 million, total liabilities of $100 million, 45% of which...

ABC Corp has net income of $75 million, total liabilities of $100 million, 45% of which is interest-bearing debt at 8% interest. The ROE for XYZ is 15% and the tax rate is 25%. Find ABC’s ROA and ROIC.

Expert Solution

Equity =Net Income/ROE% =75/15% =500
Total Assets =Equity + Total Liabilities =500+100 =600
ROA =75/600=12.5%

EBIT =Net Income/(1-Tax Rate)+Interest*45%*Total Liabilities=75/(1-25%)+8%*45%*100 =103.60
ROIC =EBIT*(1-Tax Rate)/Investment Capital =103.60*(1-25%)/600=12.95%

jeff jeffy answered 2 years ago

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