Problem 12-3 Microsoft Edge edugen wileyplus.com/edugen/shared/assignment/test/q
ID: 2457258 • Letter: P
Question
Problem 12-3 Microsoft Edge edugen wileyplus.com/edugen/shared/assignment/test/qprint.uni *Problem 12-3 Consider the following information for McKinley and Son, Inc.: 12/31/2014 12/31/2015 Total assets $55,600,000 $60,000,000 Noninterest-bearing current liabilities 1,020,000 1,400,000 3,360,000 3,486,500 Net income Interest expense 780,000 699,000 Tax rate 35% 35% X Your answer is incorrect. Try again. Evaluate the company in terms of ROI. (Round ROI to 2 decimal places, e.g. 15.32%) 2014 2015 RO 0.060432 4.23 Your answer is correct. While income has increased in fiscal 2015, is it clear that the company's performance has improved? It is hot clear that the company's performance has improved Copyright E 2000-2015 by John Wiley & Sons, Inc. or related companies. All rights reserved. Ask me anything Question Attempts: 3 of 5 used 5:47 PM A 12/1/2015Explanation / Answer
Year 2014
NOPAT = Net Income + Interest Expense - Tax saving related to interest
= 3,360,000+699,000 - (0.35*699,000)
= 4,303,650
Invested capital = Total Assets - Non interest bearing current Liabilities
= 55,600,000 - 1,020,000
= 54,580,000.
ROI of 2014 = NOPAT / Invested Capital
= 4,303,650 / 54,580,000
= 7.885%
Year 2015
NOPAT = Net Income + Interest Expense - Tax saving related to interest
= 3,486,500+780,000 - (0.35*780,000)
= 4,539,500
Invested capital = Total Assets - Non interest bearing current Liabilities
= 60,000,000 - 1,400,000
= 58,600,000.
ROI of 2014 = NOPAT / Invested Capital
= 4,539,500 / 58,600,000
= 7.746%