Answer the following questions based on the information in the table. Assume a tax rate of 30 percent. For simplicity, assume that the companies have no other liabilities other than the debt shown. (All dollars are in millions.)

Atlantic Corp. Pacific Corp.

Earnings before interest and taxes $450 $ 470 Debt (at 7% interest) $290 $1,490 Equity $910 $ 370

a. Calculate each company’s ROE, ROA, and ROIC.

b. Why is Pacific’s ROE so much higher than Atlantic’s? Does this mean Pacific is a better company? Why or why not?

c. Why is Atlantic’s ROA higher than Pacific’s? What does this tell you about the two companies?

d. How do the two companies’ ROICs compare? What does this suggest about the two companies? LO.1