Save Submit Assignment for Grading Question 5 of6 Check My Work Click here to re

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Save Submit Assignment for Grading Question 5 of6 Check My Work Click here to read the eBook: Profitability Ratios BEP, ROE, AND ROIC Broward Manufacturing recently reported the following information: $645,000 8% $212,850 Net income ROA Interest expense Accounts payable and accruals $1,050,000 Broward's tax rate is 30%. 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. BEP ROE 14.07 ?% 1.02 *% ROIC Hide Feedback Partially Correct Check My Work

Explanation / Answer

Answer:

ROA = Net Income / Total Assets * 100
8 = 645,000 / Total Assets * 100
Total Assets = $8,062,500

Total Equity = 60% of Total Invested Capital
Total Equity = 60% of $8,062,500
Total Equity = $4,837,500

Return on Equity = Net Income / Total Equity * 100
Return on Equity = 645,000 / 4,837,500 * 100
Return on Equity = 13.33%

Return on Invested Capital (ROIC) = EBIT * (1 – Tax Rate) / Total Invested Capital
Net Income = (EBIT – Interest Expense) * (1 – Tax Rate)
$645,000 = (EBIT – 212,850) * (1 – 0.30)
$645,000 = (EBIT – 212,850) * 0.70
$921,428.57 = (EBIT – 212,850)
EBIT = $1,134,278.57

Return on Invested Capital (ROIC) = 1,134,278.57 * (1 – 0.30) / 8,062,500
Return on Invested Capital (ROIC) = 793,995 / 8,062,500
Return on Invested Capital (ROIC) = 9.85%

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