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The Mercury Division of Planet Enterprises had pre-tax income of $1,500,000. Total assets were $13,000,000 while current liabilities were $3,000,000. The weighted average cost of capital is 10.0%. The tax rate for Planet Enterprises is 25%
-What is the ROI for the Mercury Division?
A) 6.72%
B) 10.00%
C) 11.54%
D) 15.00%

Question

Quizplus · Accepted Answer

ROI (Return on Investment) is calculated as Net Income divided by Total Assets. First, calculate the Net Income by subtracting taxes from pre-tax income: $1,500,000 * (1 - 0.25) = $1,125,000. Then, divide the Net Income by Total Assets: $1,125,000 / $13,000,000 = 0.0865 or 8.65%. However, the correct choice is 11.54% which suggests a miscalculation or misinterpretation in the options provided.

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