Rogers Radiators has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53.What is the return on equity?
A)6.77 percent
B)5.93 percent
C)8.95 percent
D)12.21 percent
E)14.09 percent

Question

Quizplus · Accepted Answer

The return on equity (ROE) is calculated as net income divided by equity. First, calculate total assets using the capital intensity ratio: Total Assets = Sales * Capital Intensity Ratio = $947,100 * 0.87 = $824,977. Next, calculate equity using the equity multiplier: Equity = Total Assets / Equity Multiplier = $824,977 / 1.53 = $539,849. Finally, calculate ROE: ROE = Net Income / Equity = $48,200 / $539,849 = 0.0893 or 8.95 percent.

Rogers Radiators Has Net Income of $48,200, Sales of $947,100