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Rate of Return and Incremental Investment

Please explain how the highlighted question in the attached document (all of the steps in solving the ROR incremental investment in business activity) was calculated etc. Thank you!

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What is the rate of return (after tax) on ABC's incremental investment in business activity? (Hint: because the benefit of the investment is ongoing, per annum, indefinitely into the future, the investment return is the increment to the firm's after tax and after depreciation EBITDA, that is, the increment to after tax net operating income, divided by the increment to invested capital, which is the increment to trade capital plus capital expenditure).

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For continuing and ongoing per annum benefits for a business investment, incremental rate of return is the increment to after tax and after depreciation EBITDA (which is Net Operating Income) divided by the increment to investment capital. The increment to NOI is the gross margin ...

Solution Summary

The rate of return and incremental investments are analyzed. A firm's after tax and depreciation EBITDA is given.

$2.19