Question

Company A has a capital structure of N80,000 debt and N20,000 equity. This year, the company reported a net income of N17,000. What is Company A's return on equity?

a) 85%
b) 75%
c) 117.6%
d) 120%

Answer 1

Company A's return on equity is calculated by dividing the net income by shareholder's equity, which amounts to 85%.

Step-by-step explanation:

The return on equity (ROE) can be calculated by dividing the net income by the equity. In this case, Company A's net income is N17,000 and its equity is N20,000. To calculate Company A's return on equity (ROE), we use the following formula: ROE = Net Income / Shareholder's Equity. In this instance, based on the provided information, Company A's net income is N17,000, and the shareholder's equity is N20,000. Plugging these numbers into the formula gives us:

ROE = N17,000 / N20,000 = 0.85 or 85%.

Therefore, the correct answer to the question is a) 85%.