Hernandez Corporation expects to have the following data during the coming year.What is Hernandez's expected ROE? $\begin{array}{l}
\begin{array}{lrl}
\text { Assets } & \$ 200,000 & \text { Interest rate }&8 \% \
\text { D/A } & 65 \% & \text { Tax rate } &40 \%\
\text { EBIT } & \$ 25,000 &
\end{array}\

\end{array}$
A) 12.51%
B) 13.14%
C) 13.80%
D) 14.49%
E) 15.21%

Question

Hernandez Corporation expects to have the following data during the coming year.What is Hernandez's expected ROE? $\begin{array}{l}
\begin{array}{lrl}
\text { Assets } & \$ 200,000 & \text { Interest rate }&8 \% \
\text { D/A } & 65 \% & \text { Tax rate } &40 \%\
\text { EBIT } & \$ 25,000 &
\end{array}\

\end{array}$
A) 12.51%
B) 13.14%
C) 13.80%
D) 14.49%
E) 15.21%

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Assets } & \$ 200,000 \
\text { D/A } & 65 \% \
\text { EBIT } & \$ 25,000 \
\text { Interest rate } & 8 \% \
\text { Tax rate } & 40 \% \ \
\text { EBIT } & \$ 25,000 \
\text { - Interest } & \underline{10,400} \
\text { EBT } & \$ 14,600 \
-\text { Tax } & \underline{5,840} \
\text { NI } & \underline{\$ 8,760}
\end{array}$ 
ROE = NI avail to common/Common equity
ROE = 12.51%

Hernandez Corporation Expects to Have the Following Data During the Coming