You are considering investing in Totally Tire Services. You have been able to locate the following information on the firm: total assets = $50 million, accounts receivable = $10 million, ACP = 15 days, net income = $4.5 million, and debt-to-equity ratio = 0.75 times. What is the ROE for the firm?
A) 1.58 percent
B) 9.00 percent
C) 15.75 percent
D) 28.81 percent

Question

Quizplus · Accepted Answer

ROE = Net Income / Shareholders' EquityShareholders' Equity = Total Assets - Total LiabilitiesTotal Liabilities = Debt-to-Equity Ratio * Shareholders' EquityShareholders' Equity = Total Assets / (1 + Debt-to-Equity Ratio)Shareholders' Equity = $50 million / (1 + 0.75) = $28.57 millionROE = $4.5 million / $28.57 million = 15.75%

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