Creative Productions Inc., has a tax rate of 30%, an EBIT of $400,000.

Creative Productions Inc., has a tax rate of 30%, an EBIT of $400,000. NWC of $80,000, fixed assets of $1,200,000, and current liabilities of $220,000 and a cost of capital of 12.35%. What is the firm’s ROIC?

A) 33.33%
B) 12.35%
C) 21.88%
D) 26.92%

ANSWER

C
Explanation: C) ROIC = (EBIT * (1-t))/Invested Capital, Where invested capital = Total Assets – C/L = $1,500.000 – $220,000 = $1,280,000. Therefore, ROIC = ($400,000 * (1-.30))/$1,280,000 = 21.875%.