A firm's net income for the year was $800,000. Average assets totaled $6 million, and average liabilities totaled $1.2 million. Return on equity was:
A) 13.3%
B) 16.7%
C) 10%
D)20%

Question

Quizplus · Accepted Answer

Return on equity = Net income / Average equity

Average equity = Average assets - Average liabilities

= $6 million - $1.2 million

= $4.8 million

Therefore, Return on equity = $800,000 / $4.8 million

= 16.7%

Hence, the answer is B) 16.7%.

A Firm's Net Income for the Year Was $800,000