The Amer Company has the following characteristics: $\begin{array}{|lc|}
\hline\text { Sales: } & \$ 1,000 \
\text { Total Assets: } & \$ 1,000 \
\text { Total Debt/Total Assets: } & 35 \% \text { EBIT: }\quad
\$200 \
\text { Tax rate: } & 40 \% \text { Interest rate on total debt: } 4.57 \% \
\hline
\end{array}$ What is Amer's ROE?
A)11.04%
B)12.31%
C)16.99%
D)28.31%
E)30.77%

Question

Quizplus · Accepted Answer

To calculate ROE, first find Net Income: EBIT = $200, Interest = $35 * 4.57% = $1.60, EBT = $200 - $1.60 = $198.40, Tax = 40%, Net Income = $198.40 * (1 - 0.40) = $119.04. Equity = Total Assets - Total Debt = $1,000 - $350 = $650. ROE = Net Income / Equity = $119.04 / $650 = 18.31%. However, the closest option is 16.99%.

The Amer Company Has the Following Characteristics What Is Amer's ROE? A)11

The Amer Company Has the Following Characteristics What Is Amer's ROE?
A)11