A firm has a profit margin of 12 percent; total asset turnover of 0.55 and an equity multiplier of 2.2. What is the firm's ROA and ROE?
A) ROA = 6.6 percent; ROE = 14.52 percent
B) ROA = 7.2 percent; ROE = 15.84 percent
C) ROA = 9.5 percent; ROE = 20.9 percent
D) ROA = 8.1 percent; ROE = 17.82 percent

Question

Quizplus · Accepted Answer

ROA (Return on Assets) is calculated as Profit Margin * Total Asset Turnover, which is 12% * 0.55 = 6.6%. ROE (Return on Equity) is calculated as ROA * Equity Multiplier, which is 6.6% * 2.2 = 14.52%.

A Firm Has a Profit Margin of 12 Percent; Total