You Are an Equity Analyst and Have Computed the Following

question 25

Multiple Choice

You are an equity analyst and have computed the following figures for two cement companies.The first,CementCo,has NOPLAT of $1,550 million,invested capital without goodwill of $15,000 million,and goodwill of $1,950 million.The second,CementExports,has NOPLAT of $1,750 million,invested capital without goodwill of $16,000 million,and no goodwill.If the cost of capital for both firms is 10 percent,what is the ROIC for each company? Which company is creating value in this year?

• A)ROIC excluding goodwill is 10.3 percent for CementCo and 10.9 percent for CementExports;both companies are creating value.
• B)ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;both companies are creating value.
• C)ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;only CementExports is creating value.
• D)ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;neither of the companies is creating value.

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Definitions:

Final Distribution

The process of allocating the remaining assets or earnings of a company, fund, or estate to the entitled recipients after all obligations have been met.

Hybrid Form

A blending of two or more different structures or types, often referring to a mix of elements in business, legal, or organizational forms.

Limited Liability Partnership

A partnership arrangement that limits the liability of its partners to their contributions to the business, protecting personal assets.

"S" Corporation

A type of corporation in the United States that meets specific Internal Revenue Code requirements, allowing profits to be taxed only at the shareholder level, not at the corporate level.