Internet Corporation has EBIT of $1 million, 30% debt in their capital structure, and total capital of $10 million. Their tax rate is 35%. What is their return on capital employed (ROCE)?
A)6.5%
B)10.0%
C)33.33%
D)21.67%

Question

Quizplus · Accepted Answer

ROCE is calculated as EBIT / Total Capital. Here, EBIT is $1 million and total capital is $10 million. Therefore, ROCE = $1 million / $10 million = 0.1 or 10%. However, after considering the tax effect, the formula adjusts to (EBIT * (1 - Tax Rate)) / Total Capital. Thus, the calculation becomes ($1 million * (1 - 0.35)) / $10 million = $0.65 million / $10 million = 6.5%.

Internet Corporation Has EBIT of $1 Million, 30% Debt in Their