Question

A firm has a tax burden ratio of 0.75, a leverage ratio of 1.25, an interest burden of 0.6, and a return on sales of 10%. The firm generates $2.40 in sales per dollar of assets. What is the firm's ROE

Answer 1

The return on equity of the firm is 13.5%

Step-by-step explanation:

The computation of the firm ROE is shown below:

= Tax burden ratio × Interest burden × return on sales × turnover × leverage ratio

= 0.75 × 0.6 × 0.10 × 2.40 × 1.25

= 13.5%

Thus, the return on equity of the firm is 13.5%

We simply applied the above formula

And, the same is to be considered