How do you calculate the return on invested capital for a company with EBIT of $450 million, total debt of $670 million, and equity of $505 million with a tax rate of 40%?

How do you calculate the return on invested capital for a company with EBIT of $450 million, total debt of $670 million, and equity of $505 million with a tax rate of 40%?

• A. 15%
• B. 19%
• C. 23%
• D. 39%

Answer: (C)

To calculate the return on invested capital (ROIC), the formula to use is: \[ \text{ROIC} = \frac{\text{Net Operating Profit After Tax (NOPAT)}}{\text{Invested Capital}} \] First, we need to determine NOPAT. NOPAT can be calculated using the following formula: \[ \text{NOPAT} = \text{EBIT} \times (1 - \text{Tax Rate}) \] Given that EBIT is $450 million and the tax rate is 40%, the calculation for NOPAT is: \[ \text{NOPAT} = 450 \text{ million} \times (1 - 0.40) = 450 \text{ million} \times 0.60 = 270 \text{ million} \] Next, we need to calculate the invested capital, which is the sum of total debt and total equity: \[ \text{Invested Capital} = \text{Total Debt} + \text{Equity} \] \[ \text{Invested Capital} = 670 \text{ million} + 505 \text{ million} = 1,175 \text{ million} \] Now

To calculate the return on invested capital (ROIC), the formula to use is:

[ \text{ROIC} = \frac{\text{Net Operating Profit After Tax (NOPAT)}}{\text{Invested Capital}} ]

First, we need to determine NOPAT. NOPAT can be calculated using the following formula:

[ \text{NOPAT} = \text{EBIT} \times (1 - \text{Tax Rate}) ]

Given that EBIT is $450 million and the tax rate is 40%, the calculation for NOPAT is:

[ \text{NOPAT} = 450 \text{ million} \times (1 - 0.40) = 450 \text{ million} \times 0.60 = 270 \text{ million} ]

Next, we need to calculate the invested capital, which is the sum of total debt and total equity:

[ \text{Invested Capital} = \text{Total Debt} + \text{Equity} ]

[ \text{Invested Capital} = 670 \text{ million} + 505 \text{ million} = 1,175 \text{ million} ]

Now