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Click here to read the eBook: Potential Misuses of Roe ROE AND ROIC Baker Industries net income is $26,000, its interest exp

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Answer #1

Roe = Net income / equity

= 26,000/ 260,000

= 10%

ROIC = Net operating profit after tax / Invested capital

= 28,750 / 340,000

= 8.46%

Notes:

Invested capital = debt + equity

= 80,000 + 260,000

= 340,000

Calculation of Operating profit

Net income = 26,000

+ Tax = 21,272.73

EBT. = 47,272.73

+ interest. = 5,000

Ebit. = 52,272.73

NOPAT = EBIT ( 1-tax)

= 52,272.73 ( 1 - 0.45)

= 52,272.73 (0.55)

= $ 28,750

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