Tapley Dental Supply Company has the following data: Net income: $240
Sales: $10,000
Total assets: $6,000
Debt ratio: 75%
TIE ratio: 2.0
Current ratio: 1.2
If Tapley could streamline operations,cut operating costs,and raise net income to $300,without affecting sales or the balance sheet (the additional profits will be paid out as dividends),by how much would its ROE increase?
A) 3.00%
B) 3.50%
C) 4.00%
D) 4.25%
E) 5.50%

Question

Quizplus · Accepted Answer

First, we need to calculate the current ROE:

ROE = Net Income / Total Equity
ROE = Net Income / (Total Assets - Total Debt)
ROE = $240 / ($6,000 - $4,500)
ROE = 40%

Next, we need to calculate the new net income and the new ROE:

New Net Income = $300
New ROE = ($6,000 - $4,500 + $60) / $6,000 * 100%
New ROE = 44%

Finally, we can calculate the increase in ROE:

Increase in ROE = New ROE - Current ROE
Increase in ROE = 44% - 40%
Increase in ROE = 4%

Therefore, the answer is C) 4.00%.

Tapley Dental Supply Company Has the Following Data: Net Income