Question

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%

Answer 1

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%