Calculate the roic for the software company

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Reference no: EM131974637

In 2011, a small electric motor manufacturing company has 10 mm in interest bearing liabilities and 10 mm in stockholders equity. It generated 4.3 mm in operating income in 2011.

1. Using a tax rate of 30% calculate the ROIC for the software company. Why is this metric many times more useful than ROE?

2. The company decides to embark on a major five year expansionary capital expenditure plan financed with debt and equity. Its WACC is estimated to be 12.5%. In 2016, its ROIC is 12.6%. Was the major expansion the right idea, assuming no major change in underlying fundamentals outside of the investment plan?

Reference no: EM131974637

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