Question

For fiscal year 2017, Crown Point Products had income as follows: Sales $56,000,000 Less: Cost of goods sold 38,200,000 Selling and administrative expense 5,610,000 Interest expense 1,010,000 Income before taxes 11,180,000 Less income taxes 3,913,000 Net income $7,267,000 Total assets were $96,000,000, and noninterest-bearing current liabilities were $3,600,000. The company has a required rate of return on invested capital equal to 10 percent. Calculate NOPAT, invested capital, and ROI for Crown Point Products. (Round ROI to 2 decimal places, e.g. 15.25%.) NOPAT $ Invested capital $ ROI % Comment on the company’s profitability. The company performing well.

Answer 1

Answer:

NOPAT = Operating Profit * (1 – Tax Rate)
Operating Profit = Sales – Cost of Goods Sold – Selling and Administrative Expenses
Operating Profit = $56,000,000 - $38,200,000 - $5,610,000
Operating Profit = $12,190,000

Tax Rate = Income Taxes / Income before Taxes * 100
Tax Rate = 3,913,000 / 11,180,000 * 100
Tax Rate = 35%

NOPAT = $12,190,000 * (1 – 0.35)
NOPAT = $7,923,500

Invested Capital = Total Assets – Non Interest bearing Current Liabilities
Invested Capital = $96,000,000 - $3,600,000
Invested Capital = $92,400,000

Return on Invested Capital = Net Income / Invested Capital * 100
Return on Invested Capital = 7,267,000 / 92,400,000*100
Return on Invested Capital = 7.86%