Final answer:
To calculate the Return on Equity (ROE), subtract expenses from sales revenue, calculate the average equity, and divide net income by the average equity.
Step-by-step explanation:
To calculate the Return on Equity (ROE), we need to use the formula: ROE = Net Income / Average Equity. Net Income can be calculated by subtracting expenses such as cost and depreciation, interest expense, and taxes from the sales revenue. In this case, Net Income = Sales - (Cost and Depreciation + Interest Expense + Taxes). Average Equity can be calculated by taking the average of the beginning and ending equity.
In this case, Average Equity = (Book Value of Equity at the beginning + Book Value of Equity at the end) / 2. Plugging in the given values, we have Net Income = 1500K - (500K + 300K + 0.2 * 1500K) = 300K and Average Equity = (8000K + 8000K) / 2 = 8000K. Therefore, ROE = 300K / 8000K = 0.0375 or 3.75%.