Al’s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity.What is the firm's return on assets?
A)12.00 percent
B)7.27 percent
C)15.15 percent
D)13.75 percent
E)8.33 percent

Question

Al&#8217;s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity.What is the firm's return on assets?
A)12.00 percent
B)7.27 percent
C)15.15 percent
D)13.75 percent
E)8.33 percent

Quizplus · Accepted Answer

The return on assets (ROA) is calculated as the net income divided by total assets. Given that the firm earns $0.12 for every $1 of equity and borrows $0.65 for every $1 of equity, the total assets are $1 (equity) + $0.65 (debt) = $1.65. The ROA is $0.12 / $1.65 = 0.0727 or 7.27%.

Al’s Markets Earns