Final answer:
The firm's Return on Invested Capital (ROIC) is calculated using the formula (EBIT - Tax) / (Debt + Equity); with the given values, the ROIC is determined to be 30%.
Step-by-step explanation:
The student asks about the calculation of Return on Invested Capital (ROIC) for a firm given certain financial data. The ROIC is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. The formula for ROIC is (Net Income - Dividend) / (Debt + Equity). However, in this scenario, we don't have dividend information, so we can use the formula: ROIC = (Earnings Before Interest and Taxes (EBIT) - Tax) / (Debt + Equity).
Given the information:
- Earnings Before Interest and Taxes (EBIT): $3,000
- Operating Expenses: $2,616.2
- Depreciation: $100
- Tax Rate: 40%
- Long Term Debt: $2,000
- Equity: $4,000
The firm's tax expense can be calculated as: Tax Expense = EBIT x Tax Rate = $3,000 x 0.40 = $1,200.
The net operating profit after taxes (NOPAT) is therefore: NOPAT = EBIT - Tax Expense = $3,000 - $1,200 = $1,800.
Finally, we combine debt and equity to find the total capital: Total Capital = Debt + Equity = $2,000 + $4,000 = $6,000.
Now we can calculate the ROIC: ROIC = NOPAT / Total Capital = $1,800 / $6,000 = 0.30 or 30%.