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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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