ROTC

CFA Level I
#1

Net income 100 Reported interest expense 20 Capitalized interest 5 Total debt 200 Preferred stock 50 Preferred dividend 4 Common equity 500 What’s the return on total capital? A. 15.9% B. 16% C. 16.7% D. 17.1%

#2

EBIT = 100 + 20 Denominator : 200 + 500 + 50 120/750 B. I assumed we dont have to adjust for capitalized interest or else we’ll need to know the tax rate. What’s the answer?

#3

Answer is C We need to adjust capitalized interest, simply add 5 to your numerator.

#4

good question, will you please break down the numerator and denominator.

#5

I got C ROTC = net income + all interest exp/total capital employed 125/750 = 16.7% is this the REAL answer. tip: sell side uses ROTC interchangeably with ROIC.

#6

here is Kaplan defines ROTC EBIT/total capital I have also seen net income + interest/total capital a bit confused b/c the latter does not add back taxes this is how I do it on the buy side ROIC = NOPAT/invested capital