Baker's Used Autos has sales of $638,400, total assets of $524,200, and a proﬁt margin of 9.8 %. The ﬁrm has a total debt ratio of 35 %. What is the return on equity?
A) 11.93 %
B) 14.47 %
C) 18.36 %
D) 21.05 %
E) 28.00 %

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as (Net Income / Equity). First, calculate Net Income: $638,400 * 9.8% = $62,563.20. Total equity is Total Assets * (1 - Total Debt Ratio): $524,200 * (1 - 0.35) = $340,730. ROE = $62,563.20 / $340,730 = 0.1836 or 18.36%.

Baker's Used Autos Has Sales of $638,400, Total Assets of $524,200