As a firm begins to grow and faces increasing competition as it expands,which of the following are the most likely relationships among ROIC on base capital,RONIC,and ROIC on total capital? A)ROIC on base capital ROIC on total capital. C)ROIC on base capital ROIC on total capital RONIC. D)ROIC on base capital

Question

As a firm begins to grow and faces increasing competition as it expands,which of the following are the most likely relationships among ROIC on base capital,RONIC,and ROIC on total capital? A)ROIC on base capital < RONIC < ROIC on total capital. B)ROIC on base capital > RONIC > ROIC on total capital. C)ROIC on base capital > ROIC on total capital > RONIC. D)ROIC on base capital < ROIC on total capital < RONIC.

Quizplus · Accepted Answer

ROIC on base capital typically represents the return on the initial investment or the older, more established parts of the business, which often have higher returns due to optimization and efficiency gains over time. RONIC (Return on New Invested Capital) usually reflects the return on newer investments, which might be lower as these investments are still ramping up or facing higher competition. ROIC on total capital is a blend of the two, reflecting the overall return on all invested capital, and would logically fall between the ROIC on base capital and RONIC, as it averages the high returns on base capital with the potentially lower returns on new investments.

As a Firm Begins to Grow and Faces Increasing Competition