Broward Manufacturing recently reported the following information: Broward\'s ta
ID: 2817121 • Letter: B
Question
Broward Manufacturing recently reported the following information:
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). Do not round intermediate calculations. Round your answers to two decimal places.
Net income $770,000 ROA 9% Interest expense $246,400 Accounts payable and accruals $1,000,000Explanation / Answer
RoA=Net Income/Total Assets
=>Total Assets=770000/9%=8555555.556
EBIT=Net Income/(1-tax rate)+Interest=770000/0.7+246400=1346400
Invested Capital=Total Assets-Accounts payable and accruals=8555555.556-1000000=7555555.556
Debt=40%*7555555.556=3022222.222
Equity=60%*7555555.556=4533333.334
Basic Earnings Power=EBIT/Total Assets=1346400/8555555.556=0.157371429
RoE=Net Income/Equity=770000/4533333.334=16.9852941%
RoIC=Net Income/Invested Capital=770000/7555555.556=10.1911765%
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