A firm's after-tax operating income was $1,000,000 in 2020.It started the year with a total capitalization of $8,000,000 and ended the year with a total capitalization of $9,000,000.The additional capital raised during 2020 started to affect the operating income in 2021.Which value best represents the return on capital for 2021?

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Quizplus · Accepted Answer

The return on capital for 2021 is calculated using the average capitalization for 2020, which is ($8,000,000 + $9,000,000) / 2 = $8,500,000. The return on capital is $1,000,000 / $8,500,000 = 11.76%, which rounds to 12.5%.

A Firm's After-Tax Operating Income Was $1,000,000 in 2020