Serengeti Hotels is a multinational hotel company that generated $60 million in after-tax operating income (after taxes of 40%) and reported…

Serengeti Hotels is a multinational hotel company that generated $60 million in after-tax operating income (after taxes of 40%) and reported depreciation of $80 million in the most recent year.  The firm also reported $300 million in book value of equity, $300 million in book value of debt, and a cash balance of $100 million.  Serengeti has 100 million shares trading at $7/share and its book value of debt is equal to its market value. You have run a regression of EV/EBITDA for multinational hotels and have arrived at the following output:

EV/EBITDA= 1.60 – 1.50 (Tax Rate) + 36.00 (Return on Invested Capital) – .50 (Debt to Equity Ratio)

If Serengeti is fairly priced, relative to the sector, and the debt to equity ratio of the firm is 6, what is the return on invested capital?

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