Question

Broward Manufacturing recently reported the following information: Net income $570,000 ROA 8% Interest expense $216,600 Accounts payable and accruals $1,000,000 Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 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. BEP: % ROE: % ROIC: %

Answer 1

Answer Computation of Basic Earning Power CBEP) BẾP. C 300 Total Assets To find Total assets, we can use the ROA formula: ROA Net Income Todal Assets 8). - 570,000 Todal Assets Total Assets = 570,000 71,25,000 0.08 ROA means Return of Assets now, we must find the EBIT, which means Garnings befere Interest and dates EBIT - Net Income +(Netlncome x 25) + Interest expense. 100-25 = 570,000 + ( 540,000 x 25)+ 216,600 75 - 540,000+ 190,000 + 216, boo 976,600 BP = 946,000 X100 = 13.71% 71,25,000 Note EBIT = Net Income & Tax expense & Interest Expence. Nettolome x 2B is formula of Computation of lou - 25 Jax expense.

5) Computation of Return on Equity CROE) ROE = Net Income Common Equity Net Income = $570,000 Common Equity= Total Invested Capitel x 60% Todel invested Capital - Total arsets - Decounts, and ausuals payable = 7,2 5,000 - 1,000,000 61,25,000 Common Equely = 61,25,000 x 60% 36,75,000 ROE = $5,70,000 xloo = 15.51% $36, 75,000 C) Computation of Returon invested Capital CROIC) ROIC = EBIT (1-T) / Total Invested Capital 976,600 C1- 25%)/61,28,000 Xloo 11.967. Conclusion a) 80P: 134/. 6) ROE = 15.51% C) ROIC = 11-96%.