A London Ontario firm has a net income of $32,000 which provides a 12% return on assets. The firm has a debt-equity ratio of.40. What is the return on equity?
A) 7.20%
B) 8.57%
C) 11.67%
D) 12.00%
E) 16.80%

Question

Quizplus · Accepted Answer

The return on equity (ROE) can be calculated using the relationship between return on assets (ROA), the debt-equity ratio, and the ROE itself. The formula is ROE = ROA * (1 + Debt/Equity). Given a ROA of 12% and a debt-equity ratio of 0.40, the calculation is ROE = 12% * (1 + 0.40) = 12% * 1.40 = 16.80%.

A London Ontario Firm Has a Net Income of $32,000