A firm has a debt/equity ratio of 50 percent. Currently, it has interest expense of $500,000 on $5,000,000 of total debt outstanding, and a tax rate of 40 percent. If the firm's ROA is 6 percent, by how many percentage points is the firm's ROE greater than its ROA?
A) 0.0%
B) 3.0%
C) 5.2%
D) 7.4%
E) 9.0%

Question

Quizplus · Accepted Answer

The Answer of A firm has a debt/equity ratio of 50 percent. Currently, it has interest expense of $500,000 on $5,000,000 of total debt outstanding, and a tax rate of 40 percent. If the firm's ROA is 6 percent, by how many percentage points is the firm's ROE greater than its ROA?
A) 0.0%
B) 3.0%
C) 5.2%
D) 7.4%
E) 9.0%

A Firm Has a Debt/equity Ratio of 50 Percent