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Question
The forecasts in the prior question used several assumptions. Repeat the forecasts where (scenario A) costs increase with inflation, but all other assumptions hold (costs are $90.0, $91.8, and $97.1 per unit in each of the next three years, respectively); and (scenario B) sales units remain constant, but all the other assumptions hold (including constant costs). What is the ROIC under each assumption? Which assumption is responsible for a significant increase in ROIC?
a) In scenario A, ROIC is 15.0 percent, 15.6 percent, and 16.8 percent for the next three years, respectively. ROIC significantly increases under this assumption versus the constant costs assumption.
b) In scenario B, ROIC is 15.0 percent, 16.3 percent, and 21.5 percent for the next three years, respectively. ROIC significantly increases under this assumption versus the increasing costs assumption.
c) In scenario B, ROIC is 15.0 percent, 15.6 percent, and 16.8 percent for the next three years, respectively. ROIC significantly increases under this this assumption versus the increasing costs assumption.
d) In scenario A, ROIC is 15.0 percent, 16.3 percent, and 21.5 percent for the next three years, respectively. ROIC significantly increases under this this assumption versus the increasing costs assumption.
Answer
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