Duval Manufacturing recently reported the following information Net income $600,

Question

Duval Manufacturing recently reported the following information Net income $600,000 ROA 12% Interest expense $186,000 Accounts payable and accruals $950,000 Duval's tax rate is 40%. Duval 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 % ROIC %

Explanation / Answer

Solution Net Income 600000 Less: Interest 186000 EBT 414000 Less: Tax@ 40% 165600 EAT 248400 Basic Earning Power Ratio= EBIT/TOTAL ASSET TOTAL ASSET 5000000 600000/5000000 0.12 12% ROE Net Income/Shareholder's Equity Share holder Equity 5000000-950000*60% 2430000 600000/2430000 0.24691358 24.69% ROIC Net income/Total capital Total Capital 4050000 600000/4050000 0.148148148 14.81%

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