NOPAT Is Used for 'Income' in the Return on Investment

question 13

Multiple Choice

NOPAT is used for 'income' in the return on investment formula because

• A)investment center managers should not be evaluated based on long-term financing decisions since they do not have responsibility for making those decisions.
• B)NOPAT represents the return to stockholders, and divisions are free to issue stock.
• C)NOPAT represents the return to debt capital, and division managers generally are free to issue debt needed to acquire new investments.
• D)All of these answer choices are correct.

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Definitions:

Ex Rights

The status of a stock that is sold without the benefit of any rights that may have been issued to shareholders to purchase additional shares, often at a discount.

Debt Offerings

Debt offerings involve a company issuing debt instruments, like bonds, to raise capital, obligating the company to repay the principal with interest.

Equity Offerings

The process by which companies issue shares of stock to the public or specific investors to raise capital.

Appropriate Price

The price at which assets are considered rightly valued given current market conditions and fundamentals.