Question

Rollins Corp has a total of $200,000 in current assets and $200,000 in net fixed assets....

Rollins Corp has a total of $200,000 in current assets and $200,000 in net fixed assets. If its EBIT is $100,000, what is its basic earning power (BEP)?

a.

17.50%
b.

20.00%
c.

22.50%
d.

25.00%
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Answer #1

Basic Earning power refers to the firms ability to generate earnings before interest and tax from its available assets.

Total Assets = Current Assets + Net Fixed assets

                   =$200000+$200000

                    =$400000

Basic Earning Power = EBIT/Total Assets = 100000/(200000+200000) = 0.25 = 25%

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