Excercise IV

Question 1

ROI

Answer 1

= Profit / IC

Question 2

Working Capital requirement

Answer 2

WCR = current assets- NIBL

Question 3

Invested Capital

Answer 3

IC = total assets - NIBL
= long-Term assets + WCR

Question 4

EVA

Answer 4

= profit- capital charges
= NOPAT - WACC • IC

Question 5

Capital Charges

Answer 5

= cost of Capital • Average IC
= WACC • av. IC

Question 6

Tax shield

Answer 6

= Interest expense • tax rate
Alt.
= [(income before taxes + interest expense) • tax rate] - provision for income taxes

Question 7

NOPAT

Answer 7

= operating income + interest income- taxes- tax shield

Question 8

EVA

Answer 8

= NOPAT - capital charges

Question 9

WACC (after tax)

Answer 9

= E/(E+D) • r[e] + D/(E+D) • r[d] • (1-t)

-> see Q4 handout problem set 2

Question 10

Tax rate

Answer 10

= taxes (Bzw. Prov. For income taxes) / EBT