Samuelson's has a debt-equity ratio of 40%,sales of $8,000,net income of $600,and total debt of $2,400. What is the return on equity?
A) 6.25%
B) 7.50%
C) 9.75%
D) 10.00%
E) 11.25%

Question

Quizplus · Accepted Answer

First, we need to calculate the equity of Samuelson's.

Debt- equity ratio = Debt/Equity

0.4 = 2400/Equity

Equity = 2400/0.4 = $6,000

Now, we can use the formula below to calculate return on equity (ROE):

ROE = Net Income/Equity

ROE = 600/6,000 = 0.1 or 10%

Therefore, the answer is (D) 10.00%.

Samuelson's Has a Debt-Equity Ratio of 40%,sales of $8,000,net Income