For fiscal year 2012, Katherines Department Store had net income of $4,000,000. Interest expense was $2,000,000, and

Question:

For fiscal year 2012, Katherine’s Department Store had net income of $4,000,000. Interest expense was $2,000,000, and the company’s tax rate on income was 40 percent. Total assets were $76,000,000, and noninterest-bearing current liabilities were $7,000,000. The company’s cost of capital (required rate of return) is 10 percent.

Required

Calculate NOPAT, invested capital, and residual income for Katherine’s Department Store, and comment on the company’s profitability.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...