Return on invested capital and Return on equity
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Nick Industries' net income is $27,000, its interest expense is $4,000, and its tax rate is 35%. Its notes payable equals $23,000, long-term debt equals $75,000, and common equity equals $240,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC?
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Solution Summary
The solution contains step by step workings of computation of return on invested capital and return on equity.
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Solution:
1. Return on Equity (ROE) = Net Income / Common equity = 27,000 / 240,000 = 11.25%
2. For ROIC, we need to find EBIT, NOPAT and then the invested capital.
Let the ...
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