Question

In: Finance

Herring Corporation has operating income of $265,000 and a 25%tax rate. The firm has short-term...

Herring Corporation has operating income of $265,000 and a 25% tax rate. The firm has short-term debt of $110,000, long-term debt of $349,000, and common equity of $459,000. What is its return on invested capital?

a. 18.57%

b. 16.65%

c. 21.65%

d. 16.07%

e. 19.42%

Expert Solution

Return on invested capital

= ( operating income net of tax)/(Debt + Equity)

Operating income net of tax

= 265,000 - 25%*265,000

= $198,750

Total of debt and equity

= 110,000 + 349,000 + 459,000

= 918,000

Return on invested capital

= 198,750/918,000

= 21.65%

Therefore the correct option is C

jeff jeffy answered 2 years ago

Problem #1: A firm with a normalized pretax income of $40 million, 25% tax rate, and...

Problem #1: A firm with a normalized pretax income of $40 million, 25% tax rate, and a Total Debt/Total Capital ratio of 30%, decides to undertake a capital expansion financed by new debt. The new level of debt will raise the Total Debt/Total Capital ratio to 40% (5-percentage points above its industry average). As a result, the firm’s credit rating is downgraded by a full level (say for example, from A to B) despite being secured by specific assets. This...

A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%....

A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%. The net CAPEX was $150 with a $75 change in working capital. Over the next 5 years, they anticipate an average reinvestment rate of 25% with a return on capital of 20%. During this high-growth period, they estimate a beta of 0.90, a risk-free rate of 1% and risk premium of 4%. Pre-tax debt cost is 6.5%, with a 25% debt ratio. After year...

A us corporation is subject to an income tax rate of 35% and has a branch...

A us corporation is subject to an income tax rate of 35% and has a branch in the UK which paid the national corporate tax rate of 30% on its earnings there. The branch generated taxable income from its operations in UK equivalent to $5,000,000. What is the amount of taxes owed to the us government on the income generated in the UK

A firm has the following capital structure. Assume the company's tax rate is 25% Debt: the...

A firm has the following capital structure. Assume the company's tax rate is 25% Debt: the firm has 5,000 6% coupon bonds outstanding $1000 par value, 11 years to maturity selling for 103 percent of par: the bonds make semiannual payments. Common Stock: The firm has 375000 shares outstanding, selling for $65 per share; the beta is 1.08 Preferred Stock: The firm has 15,000 shares of 5% preferred stock outstanding, currently selling for $75 per share. There is currently a...

Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its...

Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 7%. What is the firm's EVA?

Vigor Corporation reports a net income before tax for 2020 of $512,800, has a tax rate...

Vigor Corporation reports a net income before tax for 2020 of $512,800, has a tax rate of 21% and provides the following selected information (covers the three tax difference items) from its ledger as at December 31, 2019 and 2020: 2019 2020 Equipment, at cost 900,000 DR 900,000 DR Accumulated depreciation, equipment 450,000 CR 525,000 CR Deferred Tax Asset 10,080 DR ? Warranty Liability 48,000 CR 56,000 CR Deferred Tax Liability 47,250 CR ...

Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What...

Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What is the tax shield of the firm’s $38 million in debt that charges a 10% interest rate? Which of the following is TRUE regarding Company ABC given the following information? Current Assets = $250 Fixed Assets =$70 Current Liabilities = $110 Long term Debt = $90 Sales = $330 Net Income = $60 Shareholders’ Equity = $320 Current Ratio = 1.30 Asset turnover= 2.75...

ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is...

ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is 35%. It finances 25%, 50% and 75% of its assets with debt at costs of 9%,10& and 12% respectively. Discuss your results. a. Determine the ROE under three models. b. Which capital structure is best and why? c. What if EBIT increases by 10%, which capital structure is best?

Your firm has the following data Income Statement Sales $50,250,000 Income tax: $1,744,000 Operating Expenses $10,115,000...

Your firm has the following data Income Statement Sales $50,250,000 Income tax: $1,744,000 Operating Expenses $10,115,000 Cost of good sold $35,025,000 Interest expense $750,000 a. What is the amount of EBIT? b. What is the amount of Gross Profit of the firm? c. What is the amount of Income before contributions from the firm?

Below is the information on R firm and its tax rate is at 25% . Hasil...

Below is the information on R firm and its tax rate is at 25% . Hasil hingga Matang (Yield to Maturity) 9% (Number Common Stocks) 20,000 (Price Per share) $40 (Long-term debt) $400,000 (Book value per share) $30 (Expected Rate of Return on Stock) 16% i.) Find the company cost of capital ii.) Subsidiary company to R firm, i.e. FL firm book value is at RM25 per share and its trading price currently is $50. The company’s balance sheet...