midterm ii key spring 2011 fina 4210

midterm ii key spring 2011 fina 4210 - Key Midterm II FINA...

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Key Midterm II FINA 4210 Spring 2011 Poulsen Page 1 of 5 Compute ratios for 2008 and 2009 for Home Depot 1 2008 2009 Formula NOPLAT (tax rate = 35%) 2833 3122 =operating profit * (1-tax rate) Invested Capital 43294 ROIC (35%) 0.065 0.072 =NOPLAT / invested capital NOPLAT (tax rate = 37%) 2746.17 3025.89 =operating profit * (1 -tax rate) ROIC 0.063 0.070 =NOPLAT / invested capital Return on Assets 0.047 0.051 =net income / assets Return on Equity 0.067 0.081 =net income / equity .2. Operating margin 0.061 0.073 =operating profits / revenues capital turnover 1.647 1.527 =revenues / invested capital Pre-tax ROIC = 0.1007 0.1108 =operating margin * capital turnover ratio Tax = .37 0.37 0.37 ROIC 0.063 0.070 =pre tax ROIC * (1-tax rate) Tax = .35 0.35 0.35 ROIC 0.065 0.072
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Key Midterm II FINA 4210 Spring 2011 Poulsen Page 2 of 5 Short answer: If cost of capital is 5%, is the firm making an economic profit? Yes, it is because ROIC is greater than the cost of capital. When ROIC is greater
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midterm ii key spring 2011 fina 4210 - Key Midterm II FINA...

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