Question

A company has operating assets of $320 million, operating liabilities of $35 million and an expected EBIT of $55 million. What is the expected RNOA of the company (to two decimal places) if the corporate tax rate is 30%?

Answer 1

a. Return on Net Operating Assets(RNOA) = Net Operating Profits after Tax / Net Operating Assets

b. Net Operating Assets = Operating Assets - Operating Liabilities = $320 million - $35 million

Net Operating Assets = $285 million

c. Net Operating Profits after Tax = EBIT - Tax

Net Operating Profits after Tax = $55 milion - ($55 million * 30%) = $55 million - $16.5 million

Net Operating Profits after Tax = $38.5 million

d. Return on Net Operating Assets(RNOA) = $38.5 million / $285 million

Return on Net Operating Assets(RNOA) = 13.51%