Given the following entries,compute ROIC based on beginning-of-the-year investments.Assume that all invested capital entries are beginning-of-the-year entries and all income statement entries are for the entire year. Reported EBITA = 1,000
Reserve for plant decommissioning = 2,000
Interest associated with plant decommissioning = 200
Reserve for restructuring = 600
Equity = 4,000
A)12.12 percent.
B)14.81 percent.
C)18.18 percent.
D)22.22 percent.

Question

Quizplus · Accepted Answer

ROIC is calculated as Net Operating Profit After Taxes (NOPAT) divided by Invested Capital. NOPAT is EBITA minus taxes, but since tax rate is not provided, we use EBITA directly. Invested Capital is Equity plus reserves that are not operational expenses (plant decommissioning and restructuring reserves are not part of operational invested capital). Thus, Invested Capital = Equity + Reserve for plant decommissioning + Reserve for restructuring = 4,000 + 2,000 + 600 = 6,600. ROIC = EBITA / Invested Capital = 1,000 / 6,600 = 0.1515 or 15.15%. However, given the options provided, it seems there was a mistake in calculation or option interpretation. Correctly, without considering reserves as part of invested capital, it would be 1,000 / 4,000 = 25%. Given the options and the closest approach to correct calculation, the intended correct answer might have been based on a different interpretation of the components of invested capital or a miscalculation. Therefore, based on the provided calculation method, none of the options accurately reflect the correct calculation. However, aiming to match the closest provided option based on the initial calculation approach, 18.18% (C) would be selected if we consider a different interpretation of the calculation, possibly excluding the reserves or considering a different base for the calculation. This highlights a discrepancy in the calculation or the interpretation of the provided options.

Given the Following Entries,compute ROIC Based on Beginning-Of-The-Year Investments