Exercise 12-8 Calculating ROI - SEE TEXTBOOK PAGE 12-29 For fiscal year 2020, LaundryMate Products had income as follows: Sales $ 55,000,000 Less: Cost of goods sold $ 38,400,000 Selling and administrative expense 5,700,000 Interest expense 1,000,000 45,100,000 Income before taxes 9,900,000 Less income taxes 1,980,000 Net income $ 7,920,000 Other pertinent information for 2020 follows: Total assets $ 97,000,000 Noninterest-bearing current liabilities 3,200,000 Required rate of return on invested capital 10% Required Calculate NOPAT, invested capital, and ROI for LaundryMate Products. Income tax rate = ÷ = NOPAT = + [ × ( )] = Invested capital = ― = ROI = = Comment on the company's profitability.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Exercise 12-8 Calculating ROI - SEE TEXTBOOK PAGE 12-29
For fiscal year 2020, LaundryMate Products had income as follows:

	Sales				$ 55,000,000
	Less:
	Cost of goods sold		$ 38,400,000
	Selling and administrative expense	5,700,000
	Interest expense		1,000,000		45,100,000
	Income before taxes				9,900,000
	Less income taxes				1,980,000
	Net income				$ 7,920,000

Other pertinent information for 2020 follows:
	Total assets			$ 97,000,000
	Noninterest-bearing current liabilities	3,200,000
	Required rate of return on invested capital	10%

Required
Calculate NOPAT, invested capital, and ROI for LaundryMate Products.

	Income tax rate =		÷		=

	NOPAT =	+ [		× (		)] =

	Invested capital =		―		=

	ROI =	=


Comment on the company's profitability.








What-if?
Consider the following after you have completed the requirements of E12-8 above.

Suppose LaundryMate Products had $11,000,000 of fully depreciated equipment of which it decided to dispose. Calculate ROI after the disposal of the equipment.

	NOPAT =	+ [		× (		)] =

	Adjusted invested capital =		―		=

	New ROI =	=


What incentives might a manager have to dispose of assets?