Question

Baker Industries' net income is $27,000, its interest expense is $5,000, and its tax rate is 25%. Its notes payable equals $26,000, long-term debt equals $75,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places. ROE: ROIC: %

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Common equity Long-term debt Notes payable Invested Capital $250,000.00 $75,000.00 $26,000.00 $351,000.00 Tax rate 25% Net Income EBT Interest expenses EBIT NOPAT $27,000.00 $36,000.00 $5,000.00 $41,000.00 $30,750.00 1 ROE 10.80% 2 ROIC 8.76% 18 19

Cell reference -

B Common equity Long-term debt Notes payable Invested Capital 250000 75000 26000 =SUM(C2:04) Tax rate 0.25 Net Income ЕВТ Interest expenses EBIT NOPAT 27000 =C9/(1-C7) 5000 =C10+C11 =C12*(1-07) 14 ROE =C9/C2 15 1 16 17 2 18 19 ROIC =C13/05

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.