Question

Galaxy Inc. has a tax burden ratio of .75, an interest burden of .6, a leverage ratio of 1.25, and a return on sales of 10%. This year the firm makes $2.40 in sales per dollar of assets. What is the firm's ROE?

a. 15%
b. 11.5%
c. 13.5%
d. 20%

Answer 1

Return on equity = 13.5 %

Step-by-step explanation:

given data

tax burden ratio = 0.75

interest burden = 0.6

leverage ratio = 1.25

return on sales = 10%

sales assets = $2.40

to find out

What is the firm's ROE

solution

we get here Return on equity (ROE) that is express as

Return on equity = tax burden ratio ×leverage ratio × interest burden ratio × return on sale × sales .......................1

put here value we get

Return on equity = 0.75 × 1.25 × 0.6 × 10% × 2.40

Return on equity = 0.75 × 1.25 × 0.6 × 0.10 × 2.40

Return on equity = 0.135

Return on equity = 13.5 %