In: Accounting
PA3.
LO 12.3Macon Mills is a division of Bolin Products, Inc. During the most recent year, Macon had a net income of $40 million. Included in the income was interest expense of $2,800,000. The company’s tax rate was 40%. Total assets were $470 million, current liabilities were $104,000,000, and $72,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon?
INVESTED CAPITAL
Invested Capital = Total Assets - Non Interest Bearing current Liabilities |
Total Assets = $470,000,000
Non interest bearing current liabilities = $72,000,000
Invested Capital = $470,000,000 - $72,000,000 = $398,000,000 |
RETURN ON INCOME
ROI = Net operating income after tax / Invested Capital * 100 |
Net operating income after tax = $40,000,000 + $2,800,000 (1 - 40%)
= $40,000,000 + $1,680,000
= $41,680,000
Invested Capital = $398,000,000
ROI = $41,680,000 / $398,000,000 * 100 = 10.47% |
All the best...