A firm earns $0.17 in profit for every $1 of equity in the firm. The company borrows $0.60 for every $1 of equity. What is the firm's return on assets?
A) 10.63 percent
B) 13.53 percent
C) 25.15 percent
D) 26.07 percent
E) 28.33 percent

Question

Quizplus · Accepted Answer

The firm's return on equity (ROE) is 17% (0.17 profit per $1 of equity). The equity multiplier is 1 + 0.60 = 1.60 (since the company borrows $0.60 for every $1 of equity). The return on assets (ROA) is calculated as ROE divided by the equity multiplier: 0.17 / 1.60 = 0.10625, or 10.63%.

A Firm Earns $0