Question

Last year, ABC Inc. had sales of $375,000 and a net income of $25,000, and it had total assets of $350,000 at the year end. The company's debt-to-equity (D/E) ratio was 75.0%. What was the company’s ROE? (Hint: Use the DuPont identity) 4.08% 7.15% 11.67% 12.50% 5.36%

Answer 1

Answer:

Explanation:

ABC Company has a debt-equity ratio of 50 percent, a total asset turnover of 1.25, and a profit margin of 5.4 percent. What is ... Last year, ABC Inc. had sales of $375,000 and a net income of $25,000, and it had total assets of $350,000 at the year end

Answer 2

The Return on Equity of ABC Inc. will be 5.36% if it has a debt-to equity ratio of 75%.

What is Return on Equity?

The Return on Equity is the regarded as the returns generated by a business over its total equity, which can be ascertained by deducting the total liabilities of a business from the amount of assets.

When the debt-to-equity ratio is 75%, the total equities of the firm will be $466,667. Using the known formula, the calculations can be made as follows,

$\rm Return\ on\ Equity= 0.75\ x\ 0.67\ x\ 1.07\\\\\rm Return\ on\ Equity= 0.0536$

Hence, option D holds true regarding the Return on Equity.

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