Let's go through each statement:

a. Firms that have a ROIC higher than its cost of equity ratio can generate positive value. - This is correct. If a firm's return on invested capital (ROIC) is greater than its cost of equity, it indicates that the firm is generating more return on its investments than it costs to finance those investments. This is generally a positive sign and can create value for shareholders.

b. Firms can have a higher ROIC when they are able to set a rational price discipline. - This is also correct. Rational price discipline can lead to higher profit margins, which can in turn increase a firm's ROIC.

c. Depreciation expense should not be considered when calculating ROIC since it involves no cash transaction. - This is not correct. While it's true that depreciation is a non-cash expense, it is still typically included in the calculation of ROIC. This is because ROIC is designed to measure the return a company generates on its total invested capital, which includes both equity and long-term debt. Depreciation is a cost associated with long-term assets, which are part of a company's invested capital.

So, the correct answer is:

d. All of the above.

Question

Let's go through each statement:

a. Firms that have a ROIC higher than its cost of equity ratio can generate positive value. - This is correct. If a firm's return on invested capital (ROIC) is greater than its cost of equity, it indicates that the firm is generating more return on its investments than it costs to finance those investments. This is generally a positive sign and can create value for shareholders.

b. Firms can have a higher ROIC when they are able to set a rational price discipline. - This is also correct. Rational price discipline can lead to higher profit margins, which can in turn increase a firm's ROIC.

c. Depreciation expense should not be considered when calculating ROIC since it involves no cash transaction. - This is not correct. While it's true that depreciation is a non-cash expense, it is still typically included in the calculation of ROIC. This is because ROIC is designed to measure the return a company generates on its total invested capital, which includes both equity and long-term debt. Depreciation is a cost associated with long-term assets, which are part of a company's invested capital.

So, the correct answer is:

d. All of the above.

Knowee AI · Accepted Answer

Let's go through each statement:

a. Firms that have a ROIC higher than its cost of equity ratio can generate positive value. - This is correct. If a firm's return on invested capital (ROIC) is greater than its cost of equity, it indicates that the firm is generating more return on its investments than it costs to finance those investments. This is generally a positive sign and can create value for shareholders.

b. Firms can have a higher ROIC when they are able to set a rational price discipline. - This is also correct. Rational price discipline can lead to higher profit margins, which can in turn increase a firm's ROIC.

c. Depreciation expense should not be considered when calculating ROIC since it involves no cash transaction. - This is not correct. While it's true that depreciation is a non-cash expense, it is still typically included in the calculation of ROIC. This is because ROIC is designed to measure the return a company generates on its total invested capital, which includes both equity and long-term debt. Depreciation is a cost associated with long-term assets, which are part of a company's invested capital.

So, the correct answer is:

d. All of the above.

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