Cindex Corporation had total capitalization of $500 million.It had sales of $600; cost of goods sold of $375 million, and operating expenses of $75 million.Tax rate is 30%.Calculate the company's Return of Capital.
A)21%
B)23%
C)25%
D)27%

Question

Quizplus · Accepted Answer

Return on Capital (ROC) is calculated as Net Operating Profit After Taxes (NOPAT) divided by Total Capitalization. NOPAT is calculated as (Sales - Cost of Goods Sold - Operating Expenses) * (1 - Tax Rate). Here, NOPAT = ($600M - $375M - $75M) * (1 - 0.30) = $105M. ROC = $105M / $500M = 21%.

Cindex Corporation Had Total Capitalization of $500 Million