Question

ABC Company has a debt-equity ratio of 50 percent, a total asset turnover of 1.25, and a profit margin of 5.4 percent. What is the value of the ROE?

A.10.13%
B.3.38%
C.4.50%
D.6.75%
E.8.10%

Answer 1

The value of the Return on Equity (ROE) is 10.13%.

Step-by-step explanation:

The value of the Return on Equity (ROE) can be calculated using the formula: ROE = Profit Margin * Total Asset Turnover * Equity Multiplier.

Given that the debt-equity ratio is 50 percent, the equity multiplier can be calculated as 1 + Debt-Equity Ratio, which equals 1.5.

Substituting the given values into the formula, ROE = 5.4% * 1.25 * 1.5 = 10.125%. Therefore, the value of the ROE is 10.13%.