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28 January, 23:58

Herring Corporation has operating income of $265,000 and a 25% tax rate. The firm has short-term debt of $110,000, long-term debt of $349,000, and common equity of $459,000. What is its return on invested capital?

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  1. 29 January, 01:35
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    21 %

    Explanation:

    Return on invested capital is one of the profitability ratios. It measures the returns investors get from their capital investments. ROIC shows efficiency in the use of capital.

    the formula is as follows

    ROI = (Net income - Dividends) / (Debt + Equity)

    in this case:

    Income = 265,000

    debts 110,000 + 349,000 = 459,000

    equity = 459,000

    Net income = 265,000 - (25% x 265,000)

    265,000 - 66,250 = 198,750

    ROIC = 198,750/459,000+459,000

    =198,000/918,000 x 100

    =21 %
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