Last year's return on equity was 30%.This year the ROE has decreased to 20% even though the firm's earnings equaled last year's earnings.The firm has no preferred stock.What caused the decrease?
A) Equity decreased by 10%.
B) Equity decreased by 50%.
C) Equity increased by 10%.
D) Equity increased by 50%.

Question

Quizplus · Accepted Answer

NI = 0.3(Old equity)NI = 0.2(Old equity + New equity)0.3(Old equity) = 0.2(Old equity + New equity)New equity = 0.5 Old equity

Last Year's Return on Equity Was 30