A firm has an ROA of 14%,a debt/equity ratio of 0.8,a tax rate of 35%,and the interest rate on the debt is 10%.The firm's ROE is _________.

Name: A firm has an ROA of 14%,a debt/equity ratio of 0.8,a tax rate of 35%,and the interest rate on the debt is 10%.The firm's ROE is _________.
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Question

Quizplus · Accepted Answer

ROE = ROA * (1 + D/E * (rd - rs * (1 - t)))= 0.14 * (1 + 0.8 * (0.1 - 0.35 * (1 - 0.35)))= 0.14 * (1 + 0.8 * (0.1 - 0.2275))= 0.14 * (1 + 0.8 * 0.0725)= 0.14 * (1 + 0.058)= 0.14 * 1.058= 0.14812= 14.812%

A Firm Has an ROA of 14%,a Debt/equity Ratio of 0.8,a