A firm with a debt-equity ratio of 1/2,return on assets of 15%,and return on debt of 10% will have return on equity of:
A) 15.00%.
B) 16.67%.
C) 20.00%.
D) 21.17%.

Question

Quizplus · Accepted Answer

Return on equity can be calculated using the formula:

Return on Equity = Return on Assets - (Debt-to-Equity Ratio * (Return on Assets - Return on Debt))

Substituting the values given in the question:

Return on Equity = 15% - (0.5 * (15% - 10%))
Return on Equity = 16.67%

Therefore, the answer is option B) 16.67%.

A Firm with a Debt-Equity Ratio of 1/2,return on Assets