Hernandez Corporation expects to have the following data during the coming year. What is Hernandez's expected ROE?
$\begin{array}{l}
\begin{array}{lc}
\text { Assets } & \$ 200,000 \text { Interest rate } &8\%\
\text { D/A } & 65 \% \text { Tax rate } &40\%\
\text { EBIT } & \$ 25,000
\end{array}\

\end{array}$
A) 12.51%
B) 13.14%
C) 13.80%
D) 14.49%
E) 15.21%

Question

Hernandez Corporation expects to have the following data during the coming year. What is Hernandez's expected ROE?
$\begin{array}{l}
\begin{array}{lc}
\text { Assets } & \$ 200,000 \text { Interest rate } &8\%\
\text { D/A } & 65 \% \text { Tax rate } &40\%\
\text { EBIT } & \$ 25,000
\end{array}\

\end{array}$
A) 12.51%
B) 13.14%
C) 13.80%
D) 14.49%
E) 15.21%

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Assets } & \$ 200,000 \
\text { D/A } & 65 \% \
\text { EBIT } & \$ 25,000 \
\text { Interest rate } & 8 \% \
\text { Tax rate } & 40 \% \
\
\text { EBIT } & \$ 25,000 \
\text { - Interest } & 10,400 \
\text { EBT } & \$ 14,600 \
-\text { Tax } & \$ 5,840 \
\text { NI } & \$ 8,760
\end{array}$ 
ROE = NI avail to common/Common equity ROE = 12.51%

Hernandez Corporation Expects to Have the Following Data During the Coming