Nike has invested 7.5 million dollars into their new Serena William's Tennis Shoe line. Suppose Nike...

Nike has invested 7.5 million dollars into their new Serena William's Tennis Shoe line. Suppose Nike amassed total revenue of $5,000,000 with a cost of $2,000,000 for this project. They also pay dividends of $2.00 to all 500,000 shareholders. What is their return on invested capital (ROIC) ? provide answer in XX%

Expert Solution

We know that :

Return on invested capital = (net income - dividend) / (debt + equity).

Let us figure out the variables from the question:

Net income = Total revenue of $5,000,000 minus cost of $2,000,000 = $3,000,000
Dividend = $2 * 500,000 shareholders = $1,000,000
Debt + Equity = Investment by Nike = $7,500,000

Now put all variables in the formula:
Return on invested capital = (net income - dividend) / (debt + equity).
Return on invested capital = ($3,000,000 - $1,000,000) / ($7,500,000).
Return on invested capital = $2,000,000 / $7,500,000
Return on invested capital = 0.267
Or when mentioned in percentage (rounded) = 27%

Rahul Sunny answered 2 years ago

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