BEP, ROE, AND ROIC Broward Manufacturing recently reported the following information: Net income $285,000 ROA 10%...

BEP, ROE, AND ROIC

Broward Manufacturing recently reported the following information:

Net income	$285,000
ROA	10%
Interest expense	$91,200
Accounts payable and accruals	$950,000

Broward's tax rate is 35%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, while 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). Round your answers to two decimal places.

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Expert Solution

net income (profit after tax)		$285,000
tax @35% so profit before tax	$285000 /65%	$438461.54
+interest expense		$91200
EBIT(earnings before interest&tax)	$438461.54+$91200=	$529661.54
NOPAT(netoperating profit after tax)	EBIT(1-TAX rate)	$344,280

ROA( return on assets)=> net income / total value of assets

total /average value of assets=net income /return on assets

=$285000 /10% =>$2850,000

in the balancesheet total value of assets =total value of equity & liabilities

table 2

total value of equity&liabilities		$2850,000
less: accounts payable		$ 950000
value of equity & debt		$1900,000
value of debt (40% in whole finance)	$1900,000*40%	$760000
value of equity(60% in whole finance)	$1900,000*60%	$1140,000

1)BASIC EARNING POWER= EBIT / TOTAL VALUE OF ASSETS

=$529,661.54 / $2850,000 =18.58%

2) RETURN ON EQUITY =NET INCOME / AVG.SHAREHOLDERS EQUITY

=$285,000 / $ 1140,000 = 25%

3) RETURN ON INVESTED CAPITAL = NOPAT / INVESTED CAPITAL

=$ 344,280 / $ 2850,000=12.08%

i gave the exact calculations if u want u can round off to the nearest decimals

jeff jeffy answered 1 year ago

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