Question

Company B's ROA is 6.8%, and its Debt-to-Equity Ratio is 1.8. Then Company B's ROE equals (Round to 3 decimal places; for example, 0.123. Do NOT write the answer in percentages. For example, if your answer is 12.3%, you should write 0.123 in the box).

Answer 1

To calculate the ROE, multiply the ROA by the Equity Multiplier, which is 1 plus the Debt-to-Equity Ratio. In this case, the ROE is 19.04%.

Step-by-step explanation:

To calculate the ROE (Return on Equity), we need to use the formula: ROE = ROA x Equity Multiplier. The Equity Multiplier is equal to 1 plus the Debt-to-Equity Ratio. In this case, the Debt-to-Equity Ratio is 1.8, so the Equity Multiplier is 1 + 1.8 = 2.8. Given that ROA is 6.8%, we can calculate the ROE as 6.8% x 2.8 = 19.04%.

Answer 2

Using the formula ROE = ROA × (1 + Debt-to-Equity Ratio), Company B's ROE is calculated to be 0.190 after rounding to three decimal places.

Step-by-step explanation:

To calculate the Return on Equity (ROE) for Company B using the provided Return on Assets (ROA) and Debt-to-Equity Ratio, we can use the formula:

ROE = ROA × (1 + Debt-to-Equity Ratio)

Given Company B's ROA is 6.8% and its Debt-to-Equity ratio is 1.8, we substitute the values into the formula as follows:

ROE = 0.068 × (1 + 1.8)

ROE = 0.068 × 2.8

ROE = 0.1904

After rounding to three decimal places, Company B's ROE is 0.190.