You are thinking of investing in Wave Runnerz, Inc. You have only the following information on the firm at year-end 2013: net income = $10 million, total debt = $65 million, and debt ratio = 35 percent. What is Wave Runnerz's ROE for 2018?
A) 8.28 percent
B) 15.38 percent
C) 28.57 percent
D) 43.96 percent

Question

Quizplus · Accepted Answer

ROE = Net income / Shareholder's equityShareholder's equity = Total assets - Total debtTotal assets = Net income / Profit marginProfit margin = Net income / SalesSales = Net income / Net profit marginNet profit margin = Net income / Total revenueTotal revenue = Net income / Gross profit marginGross profit margin = Net income / Cost of goods soldCost of goods sold = Net income / Operating profit marginOperating profit margin = Net income / Earnings before interest and taxes (EBIT)EBIT = Net income / Interest expenseInterest expense = Net income / Debt ratioDebt ratio = Total debt / Total assetsTherefore, ROE = Net income / (Total assets - Total debt)= $10 million / ($10 million / 35% - $65 million)= $10 million / $185.71 million= 8.28%

You Are Thinking of Investing in Wave Runnerz, Inc