Question

The current pretax income for Coretex is $75,000 (tax rate is 35%), with an average asset...

The current pretax income for Coretex is $75,000 (tax rate is 35%), with an average asset base of $240,000, and an expected return of 18 percent or higher. The ROI for Coretex would amount to:

A. 18.0%

B. 20.3%

C. 31.3%

D. 68.8%

Homework Answers

Answer #1

Answer: B. 20.3%

Explanation: For calculation of ROI, we need to divide Net Profit/Post Tax Income by Total Assets/Average Asset Base. Average asset base is generally used since the amount of assets in use may have changed during the period of measurement.

a. Pre Tax Income        75,000
b. Tax Rate 35%
c. Post Tax Income        48,750
d. Average Asset Base    2,40,000
e. ROI = (c/d) % 20.31%
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