Final answer:
The ROE for Keller Cosmetics is calculated by subtracting interest and taxes from EBIT to get net income, then dividing this by the equity, which is equal to total assets divided by 2. The final ROE is 12.00%, which is not listed in the given options.
Step-by-step explanation:
To find out the Return on Equity (ROE) for Keller Cosmetics, we first need to calculate the net income. Since we have the Earnings Before Interest and Taxes (EBIT) of $20,000, we can subtract the interest and taxes to find the net income. The interest payments are $8,000 and taxes are $4,000, so:
Net Income = EBIT - Interest - Taxes
Net Income = $20,000 - $8,000 - $4,000
Net Income = $8,000
Next, since the debt-equity ratio is given as 1, we know that the firm has equal amounts of debt and equity. Therefore, the equity is equal to the firm's total assets divided by 2. Given that asset turnover ratio, which is Sales/Assets, is 3 and operating profit margin is 5%, we can calculate the sales and then the total assets.
Sales = Operating Profit / Profit Margin
Sales = $20,000 / 5% = $400,000
Assets = Sales / Asset Turnover Ratio
Assets = $400,000 / 3 = $133,333.33
Equity = Total Assets / 2
Equity = $133,333.33 / 2 = $66,666.67
Finally, we calculate the ROE as follows:
ROE = Net Income / Equity
ROE = $8,000 / $66,666.67
ROE = 0.12 or 12.00%
Thus, the correct answer is not listed among the options provided. The ROE for Keller Cosmetics is 12.00%.