Herring Corporation has operating income of $235,000 and a 40% tax rate.The firm has short-term debt of $115,000,long-term debt of $321,000,and common equity of $436,000.What is its return on invested capital?
A) 14.92%
B) 15.50%
C) 16.17%
D) 17.42%
E) 18.27%

Question

Quizplus · Accepted Answer

First, we need to calculate the invested capital.

Invested capital = Short-term debt + Long-term debt + Common equity 
Invested capital = $115,000 + $321,000 + $436,000 
Invested capital = $872,000

Next, we need to calculate net operating profit after taxes (NOPAT).

NOPAT = Operating income x (1 - tax rate) 
NOPAT = $235,000 x (1 - 0.40) 
NOPAT = $141,000

Finally, we can calculate the return on invested capital (ROIC).

ROIC = NOPAT / Invested capital 
ROIC = $141,000 / $872,000 
ROIC = 0.1617 or 16.17%

Therefore, the best choice is (C), 16.17%.

Herring Corporation Has Operating Income of $235,000 and a 40