Ketek,Inc.has $400,000 in assets and one liability in the form of a $150,000 note payable with a 12% annual interest rate.Assuming Ketek's tax rate is 30% and the firm generates a 15% return on its assets,Ketek's rate of return on owners' equity is:

Question

Quizplus · Accepted Answer

Ketek's net income is $60,000 ($400,000 x 15%). After paying taxes of $18,000 ($60,000 x 30%), Ketek's net income available to equity holders is $42,000. Ketek's owners' equity is $250,000 ($400,000 - $150,000). Therefore, Ketek's rate of return on owners' equity is $42,000/$250,000 = 16.8%.

Ketek,IncHas $400,000 in Assets and One Liability in the Form