Question

Runner Mills is a division of Iowa Woolen Products. For the most recent year, Runner had net income of $18,000,000. Included in income was interest expense of $1,260,000. The operation’s tax rate is 20 percent. Total assets of Runner Mills are $211,500,000, current liabilities are $46,800,000, and $32,400,000 of the current liabilities are noninterest bearing.

Calculate NOPAT, invested capital, and ROI for Runner Mills. (Round ROI to 2 decimal places, e.g. 15.25.)

NOPAT		$19,008,000
Invested capital		$179,100,000
ROI		10.61%

Can someone please help me with the ROI portion of the question above? I keep getting 10.61%, and the NOPAT and Invested capital noted above are correct. What step am I missing, please help!

Answer 1

Answer
correct ROI is 10.61% ( it is correct )
I am also get 10.61%
Calculation of NOPAT
Income before tax (18000000/(1-0.20)	$        22,500,000
add: interest expense	$          1,260,000
Operating profit	$        23,760,000
tax @20%
NOPAT (23760000*0.80)	$        19,008,000
Total assets	$      211,500,000
less: non interest bearing laibilities	-$        32,400,000
Invested capital	$      179,100,000
Return on invested capital (ROI) = NOPAT/Operating capital
ROI = 21252000/198000000 =10.61%