The proper numerator to use in computing return on assets is
A) Net income after noncontrolling interests - interest expense + noncontrolling interest in income
B) Net income after noncontrolling interests + (1- tax rate) × interest expense + noncontrolling interest in income
C) Net income after noncontrolling interests + (tax rate) × interest expense + noncontrolling interest in income
D) Net income after noncontrolling interests - (1- tax rate) × interest expense + noncontrolling interest in income

Question

Quizplus · Accepted Answer

The proper numerator to use in computing return on assets is net income after noncontrolling interests plus an adjustment for interest expense that reflects the tax savings from the interest deduction. The adjustment is (1- tax rate) multiplied by interest expense. Noncontrolling interest in income should also be added to the numerator. Therefore, option B is the correct choice.

The Proper Numerator to Use in Computing Return on Assets