Question
In: Finance
Broward Manufacturing recently reported the followinginformation:Net income$414,000ROA8%Interest expense$124,200Accounts...
Broward Manufacturing recently reported the following information:
| Net income | $414,000 |
| ROA | 8% |
| Interest expense | $124,200 |
| Accounts payable and accruals | $950,000 |
Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 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). Do not round intermediate calculations. Round your answers to two decimal places.
BEP% =
ROE% =
ROIC% =
Solutions
Expert Solution
BEP = 13.067%
ROE = 16.33%
ROIC =12%
1.
BASIC EARNINGS POWER (BEP) =EBIT / TOTAL ASSETS
ROA =NET INCOME / TOTAL ASSETS
8% = 414,000 / TOTAL ASSETS
TOTAL ASSETS =5,175,000
WORK BACK FROM NET INCOME
EBIT =676200
LESS INTEREST = 124,200
INCOME BEFORE TAXES 552,000
LESS INCOME TAX =138,000
(414,000 / (1-25%) X25%)
NET INCOME =414,000
BEP = 676,200 / 5,175,000
=13.067%
2.
RETURN ON EQUITY = NET INCOME / COMMON EQUITY
COMMON EQUITY = CAPITAL INVESTED X 60%
= ( 5,175,000 - 950,000) X 60%
=2,535,000
ROE = NET INCOME / COMMON EQUITY
=414,000 / 2,535,000
=16.33%
3. ROIC = EBIT (1-T) / TOTAL INVESTED CAPITAL
=676,200(1-25%) / 4,225,000
= 507,150 / 4,225,000
=12%
jeff jeffy answered 2 years agoRelated Solutions
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