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. Q Corp. has a Basic Earning Power (BEP) ratio of 15%, and has a TIE...

. Q Corp. has a Basic Earning Power (BEP) ratio of 15%, and has a TIE ratio of 6. Total assets are $100,000, and the debt-equity ratio of 1. The corporate tax rate is 40%.

Compute ROA and ROE?

Expert Solution

The formula used for all the ratios is as given below

$Basic Earning Power = Earnings Before Interest & Taxes (EBIT)/ Total Assets$

Since, Total Debt + Total Equity = Total Assets

As given, D/E = 1

Adding 1 to both sides we get,

1+ D/E = 1+1

Total Assets / Total Equity = 2

jeff jeffy answered 1 month ago

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