Creative Productions Inc.,has a tax rate of 30%,an EBIT of $400,000.NWC of $80,000,fixed assets of $1,200,000,and current liabilities of $220,000 and a cost of capital of 12.35%.What is the firm's ROIC?

Question

Quizplus · Accepted Answer

ROIC = (EBIT x (1-tax rate)) / (NWC + net fixed assets)
ROIC = (400,000 x (1-0.30)) / (80,000 + 1,200,000)
ROIC = 0.7 x 266,667 / 1,280,000
ROIC = 14.67%

Since the cost of capital is 12.35%, the ROIC of 14.67% exceeds the cost of capital, indicating that Creative Productions Inc. is creating value for its shareholders. Therefore, the best choice is C.