Use the table for the question(s)below.
Consider the following balance sheet:

-Luther Corporation's share price is $39 and the company has 20 million shares outstanding. Its excess cash in 2012 is $23.4. If EBIT is 41.2 and tax rate is 35%, its Return on Invested Capital in 2009 is closest to:
A)0.104
B)0.064
C)0.038
D)0.068

Question

Use the table for the question(s)below.
Consider the following balance sheet:
  
-Luther Corporation's share price is $39 and the company has 20 million shares outstanding. Its excess cash in 2012 is $23.4. If EBIT is 41.2 and tax rate is 35%, its Return on Invested Capital in 2009 is closest to:
A)0.104 
B)0.064 
C)0.038 
D)0.068

Quizplus · Accepted Answer

To calculate the Return on Invested Capital (ROIC), we need to calculate the invested capital first. Invested capital is the total amount of capital invested in the company, which is equal to total assets minus excess cash minus non-interest bearing liabilities.

Invested capital = Total assets - Excess cash - Non-interest bearing liabilities
Invested capital = 201.6 - 23.4 - 50.4
Invested capital = 127.8

Now, we can calculate ROIC using the following formula:

ROIC = EBIT / Invested capital * (1 - Tax rate)
ROIC = 41.2 / 127.8 * (1 - 0.35)
ROIC = 0.068 or 6.8%

Therefore, the closest answer is D) 0.068 or 6.8%.

Use the Table for the Question(s)below