Question

Sales for the year = $341,126, Net Income for the year = $38,441, Income from equity investments = $9,033, and average Equity during the year = $123,650. Return on equity (ROE) for the year is:

A) 31.1%
B) 11.3%
C) 7.3%
D) 2.6%
E) There is not enough information to answer the question

Answer 1

To calculate Return on Equity (ROE), the adjusted net income, which excludes income from equity investments, should be divided by the average equity. However, with the provided figures and multiple-choice answers, there seems to be a discrepancy, leading to the conclusion that there isn't enough information to answer the question.

Step-by-step explanation:

The student is asking how to calculate Return on Equity (ROE), which is a financial ratio that measures the profitability of a company in relation to the average equity of its shareholders. To calculate ROE, we use the formula ROE = (Net Income - Income from Equity Investments) / Average Equity. So, based on the information provided:

• Net Income: $38,441
• Income from Equity Investments: $9,033
• Average Equity: $123,650

We calculate the adjusted net income by subtracting the income from equity investments from the net income, which gives us $38,441 - $9,033 = $29,408. Then we divide this adjusted net income by the average equity to get the ROE:

ROE = $29,408 / $123,650 = 0.2377 or 23.77%

None of the answer choices matches this calculation, hence the correct answer would be E) There is not enough information to answer the question, implying that there might be a mistake in the figures or answer choices given.