What is the ROE for a firm with times interest earned ratio of 2, a tax liability of $1 million and interest expense of $1.5 million if equity equals $1.5 million?
A)44.44%
B)33.33%
C)22.22%
D)11.11% Times interest earned = EBIT/interest = 2
Therefore, EBIT = 3 million because interest = $1.5 million
Net income = EBIT - interest - taxes
= $3 million - $1.5 million - $1 million = $.5 million
ROE = net income/equity

Question

Quizplus · Accepted Answer

ROE = net income/equity = $.5 million/$1.5 million = 0.33 or 33.33%

What Is the ROE for a Firm with Times Interest