An Analyst Is Estimating the ROIC of a Company That

question 12

Multiple Choice

An analyst is estimating the ROIC of a company that has zero fixed costs per unit and pays no taxes.The analyst makes the following forecasts: Sales next year will equal 250 units and will increase at 10 percent for each of the two following years.Prices per unit will be $102,$104,and $110,which simply embody inflation forecasts.Costs per unit will be constant at $90.Current capital invested is $20,000,and the firm will reinvest 50 percent of profits.What is the ROIC for each of the three years? If this is a competitive industry,are the results realistic?

• A)ROICs in the next three years are 15.0 percent,17.9 percent,and 25.8 percent,respectively;results are realistic for a competitive industry.
• B)ROICs in the next three years are 15.0 percent,16.5 percent,and 18.3 percent,respectively;results are realistic for a competitive industry.
• C)ROICs in the next three years are 15.0 percent,16.5 percent,and 18.3 percent,respectively;results are not realistic for a competitive industry.
• D)ROICs in the next three years are 15.0 percent,17.9 percent,and 25.8 percent,respectively,results are not realistic for a competitive industry.

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Definitions:

Direct Perception

The process of immediately understanding or knowing something through sensory input, without the need for conscious reasoning.

Creativity

The use of imagination or original ideas to create something; inventiveness that is often applied in artistic or problem-solving contexts.

Scholastic Ability

The capacity or potential of an individual to perform and achieve in academic settings.

Alex Osborn

An advertising executive and creative thinker known for coining the term "brainstorming" and co-founding the Creative Education Foundation.