Ask Question
30 January, 23:12

It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark?

Answers (1)
  1. G
    30 January, 23:55
    0
    EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.

    Explanation:

    As a rule of thumb, if a firm's ROIC is greater than its cost of capital, it generates value; if it is less than the cost of capital, the firm destroys value.

    Since EagleCorp's ROIC was greater than its cost of capital, the company is more likely to create value. Myna Bird Inc., on the other hand, had a cost of capital that exceeded its ROIC, and was thus more likely to destroy value. Mark would be wise to invest his money in EagleCorp.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year ...” 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
Sign In
Ask Question