Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text { Video Division }\
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ How much is the ROI of the Audio Division?
A)9.33%
B)66.67%
C)14.00%
D)16.00%

Question

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text {  Video Division }\
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ How much is the ROI of the Audio Division?
A)9.33%
B)66.67%
C)14.00%
D)16.00%

Quizplus · Accepted Answer

ROI (Return on Investment) is calculated as NOPAT divided by Invested Capital. For the Audio Division, ROI = \$1,400,000 / \$15,000,000 = 0.0933 or 9.33%.

Standard Media Has a Required Rate of Return of 5