Question

B Corporation has an operating profit margin (EBIT/revenue) of 11%; an asset turnover ratio of 1.2; a financial leverage multiplier of 1.5 times; an average tax rate of 35%; and an interest burden of 0.8. B Corporation’s return on equity is closest to:

Answer 1

The return on equity for B corporation is 19.8%

Step-by-step explanation:

According to the Dupont formula the return on equity is a product of asset turnover ratio , financial leverage and profit margin.

So in order to find the return on equity we have to multiply the profit margin, asset turnover ratio and financial leverage multiplier.

0.11*1.2*1.5= 0.198=19.8%

The return on equity for B corporation is 19.8%