An Analyst Is Estimating the ROIC of a Company That

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.