Ask Question
BusinessBusiness
2 December, 16:28

Broward Manufacturing recently reported the following information: Net income $365,000 ROA 7% Interest expense $127,750 Accounts payable and accruals $1,050,000 Broward's tax rate is 40%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, while 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

+2
Answers (2)
  1. 2 December, 17:54
    0
    BEP = 14.11%

    ROE = 14.6%

    ROIC = 10.60%

    Explanation:

    Calculate its basic earning power (BEP)

    The formula for BEP is

    BEP = EBIT / Total Assets

    To find Total Assets, we can use the ROA formula:

    ROA = Net Income / Total Assets

    7% = $365,000 / Total Assets

    Total Assets = $365,000 / 7%

    = $5,214,285.714

    Now, we must find the EBIT, which means Earnigns Before Interest and Taxes.

    We have a net income of $365,000. The tax rate is 40%. We solve the following formula to find the tax expense:

    Tax Expense = $365,000 / ((1 - 40%) / 40%)

    = $243,333.333

    Now, we add the net income, the tax expense that we found above, and the interest expense:

    EBIT = $365,000 + $243,333.333 + $127,750

    = $736,083.333

    Finally we can find the BEP:

    BEP = $736,083.333 / $5,214,285.714

    = 0.1411

    = 14.11%

    2) To find the return on equity, we must first find the common equity

    Total Invested Capital = Total Assets - Accounts Payable and Accruals

    = $5,214,285.714 - $1,050,000

    = $4,164,285.714

    Common Equity = Total Invested Capital x 60%

    = $4,164,285.714 x 60%

    = $2,498,571.428

    Now we can solve for ROE

    ROE = Net Income / Common Equity

    = $365,000 / $2,498,571.428

    = 0.1460

    = 14.6%

    3) To find the return on invested capital, we use this formula:

    ROIC = EBIT (1 - T) / Total Invested Capital

    = $736,083.333 (1 - 40%) / $4,164,285.714

    = 0.1060

    = 10.60%
  2. 2 December, 19:02
    0
    Answer: (1) BEP = 0.12 (2) ROE = 0.09 (3) ROIC = 0.08

    Explanation:

    Since we are given 7% as ROA

    Therefore to calculate total Asset

    = Net income / ROA

    = 365,000 / 0.07

    = $5,214,285.71

    To calculate tax expense

    = Tax rate * Net income

    = 40% * 365,000

    = 0.4 * 365,000

    = $146,000

    EBIT = Net income + Tax expense + interest expense

    = 365,000 + 146,000 + 127,750

    =$638,750

    BEP = EBIT / Total Assets

    = 638,750/5,214,285.17

    =0.12

    To calculate ROE

    ROE = Net income / Shareholders Equity

    To calculate shareholders Equity

    =Total capital invested = Total Asset - Account payable

    = 5,214,285.17 - 1,050,000

    = $4,164,285.71

    Common Equity = 4,164,285.71 * 60%

    = $2,498,571.42

    Debt = 4,164,285.71 * 40%

    = 1,665,714.06

    Shareholders Equity = Common Equity + Debt

    = 2,498,571.42 + 1,665,714.06

    =$4,164,285.48

    ROE = Net income / Shareholders Equity

    = 365,000/4,164,285.48

    = 0.09

    To calculate Return on invested capital

    ROIC = Net income / Total invested capital

    = 365,000 / 4,164,285.71

    =0.08
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Broward Manufacturing recently reported the following information: Net income $365,000 ROA 7% Interest expense $127,750 Accounts payable ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Patsy possesses twenty-four acres of remote, rugged land. Patsy has the right to use the property, including extracting silver from an existing mine, for life. Patsy also has the right to lease the land for a period not to exceed her life.
Answers (1)
The technician's first step in a/c system service should be to:
Answers (1)
The following data is available for Box Corporation: Common stock, par $10 (authorized 30,000 shares) $250,000 Treasury stock (at cost $15 per share) $1,200 Based on the data, how many shares of common stock are outstanding?
Answers (1)
What are organizations that are in the business of benefiting society and operate like a business called
Answers (1)
the probabilities that stock A will rise in price is 0.61 and that stock B will rise in price is 0.39. Further, if stock B rises in price, the probability that stock A will also rise in price is 0.59. a.
Answers (1)
New Questions in Business
Most of the time it is quite difficult to separate the three functions of money. Money performs its three functions at all times, but sometimes we can stress one in particular.
Answers (1)
The APB partnership agreement specifies that partnership net income be allocated as follows: Partner A Partner P Partner B Salary allowance 30000 10000 40000 Interest on average capital balance 10% 10% 10% Remainder 40% 40% 20% Average capital
Answers (1)
The supply curve of reserves in an economy is horizontal when: A) the federal funds rate is greater than the seasonal credit discount rate. B) the federal funds rate is less than the secondary credit discount rate.
Answers (1)
Colton took out a 3 year loan for $2075 at a computer store to be paid back with monthly payments at a 10.7% APR. If the loan offers no payments for the first 11 months, how many payments will Colton be required to make?
Answers (1)
An externality is a. a benefit realized by the purchaser of a good or service. b. a cost paid for by the producer of a good or service. c. a benefit or cost experienced by someone who is not a producer or consumer of a good or service. d.
Answers (1)
Home » Business » Broward Manufacturing recently reported the following information: Net income $365,000 ROA 7% Interest expense $127,750 Accounts payable and accruals $1,050,000 Broward's tax rate is 40%.
Sign Up Forgot Password?