A firm has an ROA of 19%,a debt/equity ratio of 1.8,a tax rate of 30%,and the interest rate on its debt is 7%.Its ROE is _________.

Question

Quizplus · Accepted Answer

ROE = ROA x (1 - debt/equity) x (1 - tax rate) + (debt/equity x interest rate x [1 - tax rate])

Substituting the given values, we get:

ROE = 19% x (1 - 1.8) x (1 - 0.30) + (1.8 x 7% x [1 - 0.30])
ROE = 28.42%

Therefore, the answer is (B).

A Firm Has an ROA of 19%,a Debt/equity Ratio of 1.8,a