Smith Corporation has earned a return on capital invested of 10% for the past two years,but an investment analyst reviewing the company has stated the company is not creating shareholder value.This may be due to the fact that
A) the risk-free rate of interest is 3%.
B) the corporation's inventory turnover is high.
C) investors' required rate of return is 8%.
D) investors' required rate of return is 12%.

Question

Quizplus · Accepted Answer

The company's return on capital invested of 10% is not meeting the investors' required rate of return of 12%, which means that the company is not creating enough value for its shareholders. Therefore, the best choice is D, where the investors' required rate of return is higher than the company's return on capital invested.

Smith Corporation Has Earned a Return on Capital Invested of 10