Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent. The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division }&\text { Video Division }\\hline
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ How much is the ROI of the Audio Division?

Question

Quizplus · Accepted Answer

ROI = NOPAT / Invested Capital = $1,400,000 / $15,000,000 = 9.33%

Standard Media Has a Required Rate of Return of 5