Leo's Markets has sales of $684,000,costs of $437,000,interest paid of $13,800,total assets of $712,000,and depreciation of $109,400.The tax rate is 21 percent and the equity multiplier is 1.6.What is the return on equity?

Question

Quizplus · Accepted Answer

To calculate the Return on Equity (ROE), we first need to determine the Net Income and then divide it by the Equity. The formula for ROE is ROE = Net Income / Equity.1. Calculate Earnings Before Interest and Taxes (EBIT):   EBIT = Sales - Costs - Depreciation   EBIT = $684,000 - $437,000 - $109,400 = $137,6002. Calculate Net Income:   Net Income = (EBIT - Interest) * (1 - Tax Rate)   Net Income = ($137,600 - $13,800) * (1 - 0.21)   Net Income = $123,800 * 0.79 = $97,8023. Calculate Equity:   Since the equity multiplier is 1.6 and it is equal to Total Assets / Equity, we can rearrange the formula to find Equity:   Equity = Total Assets / Equity Multiplier   Equity = $712,000 / 1.6 = $445,0004. Calculate ROE:   ROE = Net Income / Equity   ROE = $97,802 / $445,000 = 0.21978 or 21.98%Therefore, the correct answer is E) 21.98 percent.

Leo's Markets Has Sales of $684,000,costs of $437,000,interest Paid of $13,800,total