Question

If a retailer has an ROA of 10 percent and a financial leverage of 4.0, then its RONW would be:

1) 0.4 percent
2) 6 percent
3) 14 percent
4) 26 percent
5) 40 percent

Answer 1

To calculate the return on net worth (RONW), multiply the return on assets (ROA) by the financial leverage. In this case, the retailer's RONW would be 40 percent.

Step-by-step explanation:

To calculate the return on net worth (RONW), we need to multiply the return on assets (ROA) by the financial leverage. The formula for RONW is: RONW = ROA * financial leverage. In this case, the ROA is 10% and the financial leverage is 4.0. So, RONW = 10% * 4.0 = 40%.

Therefore, the retailer's RONW would be 40 percent. To calculate the return on net worth (RONW), multiply the return on assets (ROA) by the financial leverage. In this case, the retailer's RONW would be 40 percent.