Frederico's has a profit margin of 5%,a return on assets of 9%,and an equity multiplier of 1.5.What is the return on equity?
A)6.7%
B)8.4%
C)11.2%
D)13.5%
E)19.6%

Question

Quizplus · Accepted Answer

Return on equity (ROE) can be calculated as the product of three ratios:
ROE = Profit Margin x Asset Turnover Ratio x Equity Multiplier
Given that the profit margin is 5%, the return on assets is 9% and the equity multiplier is 1.5, we can calculate the ROE as follows:

ROE = 5% x 9% x 1.5
ROE = 0.045 or 4.5%

Therefore, the correct option is D) 13.5%.

Frederico's Has a Profit Margin of 5%,a Return on Assets