Question

   Assume the following for ABC corp.

Net Operating Profit (before taxes)  =   $10,000

Cash Operating Taxes  =   $3,000

WACC =  6%

Total Investment Capital  =  $200,000

Please calculate the following:

Capital Charge

Economic Value Added and

Return on Invested Capital (ROIC)

3)  Capital Charge

A:  $600

B:  $180

C.  $420

D.  $12,000

E.  NONE OF ABOVE (what is the correct answer.)    

4)  Economic Value Added

A.  $7,000

B.  $1,000

C.  $13,000

D.  $187,000

E.  NONE OF ABOVE  (what is the correct answer.)       

5) Return on Invested Capital (ROIC)

A. 3.5%

B. 6%

C. 5%

D. 1.5%

E.  NONE OF ABOVE (what is the correct answer.)  

Answer 1

3) Calculation of the capital charge :-

Capital charge = Net operating profit after tax * WACC

= (10000 - 3000) * 6%

=7000 * 6%

Capital charge = $ 420

Option C is correct.

4) Calculation of the econonmic value added :-

Economic value added = Net operating profit after tax - Capital invested * WACC

= (10000 - 3000) - 200,000 * 6%

=7000 - 12,000

EVA = - $ 5000

Option E is correct

5) Calculation of the return on invested capital :-

RoIC = Net operating profit after tax / Invested capital

= 7000 / 200000

ROIC = 3.5%

Option A is correct.