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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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?     
   
 
 
 
 
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