Reference no: EM133134115

Question - Harper's acquisition math is paraphrased here. He believes that he can buy a life science tools firm with $5 million annual revenue for two times its annual revenue and boost its annual revenue to $25 million by investing an additional $8.75 million immediately after the acquisition. Suppose the EBIT margin in the life science tools business is 20% and the tax rate is 25%. What will be the post-acquisition annual ROCE of this firm, assuming that the revenue boost will be realized one year after the acquisition? Assume no further growth beyond $25 million in the subsequent years, which implies that capital employed will remain the same across years. We have defined ROCE from the shareholders' perspective, which means the numerator in the ROCE definition will be NOPAT (operating profit after corporate tax).