Answer:
ROIC is 9.26%
ROE is 12.63%
Explanation:
According to the given data we have the following:
Total assets = $1,080,000
Total liabilities = Current liabilities + Debt + Common equity = $1,080,000
D/(D + E) = 0.40
D / ($1,080,000 - 100,000) = 0.40
D = $392,000
Common equity = Total liabilities - Current liabilities - Debt = $1,080,000 - 100,000 - 392,000= $588,000
BEP = 0.15 = EBIT/TA
= EBIT/$1,080,000
Therefore, EBIT = $162,000
In order to calculate the ROIC we would have to make the following calculation:
ROIC = [EBIT(1 – T)]/(D + E) = [$151,200(0.6)]/($392,000 + $588,000) = 9.26%
ROIC is 9.26%
To calculate the ROE we would have to calculate first net income from income statement as follows:
EBIT=$151,200
Less: Interest ($392,000 x 7%) 27,440
EBT= 123,760
Less: Tax 40% 49,504
Net Income= 74,256
Therefore, ROE = NI/E = $74,256/$588,000 = 12.63%
ROE is 12.63%
