What is the ROE for a firm with a 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) 26.67%
B) 30.00%
C) 33.33%
D) 50.00%

Question

Quizplus · Accepted Answer

Times interest earned = EBIT / Interest2 = EBIT / $1,500,000EBIT = $3,000,000Net income = EBIT − interest − taxesNet income = $3,000,000 − 1,500,000 − 1,000,000Net income = $500,000ROE = net income / equityROE = $500,000 / $1,500,000ROE = 0.3333, or 33.33%

What Is the ROE for a Firm with a Times