Use the table for the question(s)below.
Consider the following balance sheet:
-Luther Corporation's stock price is $39 per share and the company has 20 million shares outstanding.Its excess cash in 2019 is $23.4.If EBIT is $41.2 million and tax rate is 21%,its Return on Invested Capital in 2019 is closest to:
A)0.104.
B)0.064.
C)0.038.
D)0.083.

Question

Use the table for the question(s)below.
Consider the following balance sheet:  
-Luther Corporation's stock price is $39 per share and the company has 20 million shares outstanding.Its excess cash in 2019 is $23.4.If EBIT is $41.2 million and tax rate is 21%,its Return on Invested Capital in 2019 is closest to:
A)0.104. 
B)0.064. 
C)0.038. 
D)0.083.

Quizplus · Accepted Answer

First, we need to calculate the Invested Capital of Luther Corporation in 2019 - this is the amount of capital invested in the business and is equal to Total Assets - Excess Cash. Using the table, we can calculate:

Invested Capital = Total Assets - Excess Cash
Invested Capital = $496.2 million - $23.4 million
Invested Capital = $472.8 million

Next, we need to calculate Net Operating Profit After Taxes (NOPAT):

NOPAT = EBIT x (1 - Tax Rate)
NOPAT = $41.2 million x (1 - 0.21)
NOPAT = $32.548 million

Finally, we can calculate the Return on Invested Capital (ROIC):

ROIC = NOPAT / Invested Capital
ROIC = $32.548 million / $472.8 million
ROIC = 0.0688 or 6.88%

Therefore, the closest answer choice is D) 0.083.

Use the Table for the Question(s)below