Final answer:
IE Inc. has an ROE of approximately 31.92%, calculated using the formula ROE = ROA x (1 + Debt/Equity) x (1 - Tax Rate) with the given values.
Step-by-step explanation:
The Return on Equity (ROE) for IE Inc. can be calculated using the following formula: ROE = ROA x (1 + Debt/Equity) x (1 - Tax Rate). Given IE Inc. has an ROA of 19%, a debt/equity ratio of 1.4, an interest rate on its debt of 7%, and a tax rate of 30%, we can plug in the values to find the ROE. The calculated ROE value is -7.6%. However, it is important to note that a negative ROE is unusual and typically indicates financial distress.
It suggests that the company's assets are not generating sufficient profits relative to its equity. First, we consider the impact of the debt structure and the tax shield on interest. The formula can be simplified to: ROE = ROA x (1 + Debt/Equity) x (1 - Tax Rate). Now, calculating the values we get: ROE = 0.19 x (1 + 1.4) x (1 - 0.30). Expanding this, we have ROE = 0.19 x 2.4 x 0.70, which equals an ROE of approximately 31.92%.