A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72.What is the return on equity?
A)11.67 percent
B)18.98 percent
C)14.45 percent
D)16.22 percent
E)15.06 percent

Question

Quizplus · Accepted Answer

Return on Equity (ROE) can be calculated using the formula: ROE = Net Income / Equity. Given the return on assets (ROA) is 8.4% and the debt-equity ratio is 0.72, we can find the equity multiplier (1 + Debt/Equity) which is 1.72. ROE can also be calculated as ROA * Equity Multiplier. Therefore, ROE = 8.4% * 1.72 = 14.45%.

A Firm Has Net Income of $197,400, a Return on Assets