Hello,

I am having difficulty with calculating the ROIC. Can you please help with this question? See below:

thanks,

Kellie

Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $20 million in invested capital, has $4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 50% and pays 12% interest on its debt, whereas LL has a 30% debt-to-capital ratio and 10% interest on its debt. Neither of them uses preferred stock in its capital structure.

1. Calculate the return on invested capital (ROIC) for each firm.