Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities.The cost of equity capital is 15%, while the tax rate is 30%.
-Novella Ltd.reported a return on investment of 16%, an asset turnover of 6, and income of $190,000.On the basis of this information, the company's invested capital was
A)$1,187,500.
B)$7,125,000.
C)$1,140,000.
D)$197,917.
E)$182,400.

Question

Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities.The cost of equity capital is 15%, while the tax rate is 30%. 
-Novella Ltd.reported a return on investment of 16%, an asset turnover of 6, and income of $190,000.On the basis of this information, the company's invested capital was
A)$1,187,500. 
B)$7,125,000. 
C)$1,140,000. 
D)$197,917. 
E)$182,400.

Quizplus · Accepted Answer

The return on investment (ROI) is calculated as Income / Invested Capital. Given ROI is 16% and income is $190,000, the equation is 0.16 = $190,000 / Invested Capital. Solving for Invested Capital gives $1,187,500.

Answer the Following Question(s)using the Information Below