Question

Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity?6.77 percent5.93 percent8.95 percent12.21 percent14.09 percent

Answer 1

Option (C) is correct.

Step-by-step explanation:

Return on Equity (ROE) = ?

Using DuPont Model, the Return on Equity (ROE) is calculated by using the following formula :

Return on Equity (ROE):

= Net Profit Margin × Total Asset Turnover × Equity Multiplier

= [Net Income ÷ Sales] × [1 ÷ Capital Intensity Ratio] × Equity Multiplier

= [$48,200 ÷ 947,100] × [1 ÷ 0.87] × 1.53

= 5.0892% × 1.1494 × 1.53

= 8.95%