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Given following information, what is the companys ROE? Debt 5: 60% Tax Rate: 35% Earnings before...

Given following information, what is the companys ROE?

Debt 5: 60%

Tax Rate: 35%

Earnings before interest and tax: $20,000

Interest Rate: 8%

Assets: $160,000

A. 12.098%

B. 12.153%

C. 13.116%

D. 13.867%

Solutions

Expert Solution

ROE = Net Income/ Total Equity*100

Earnings before Interest and Taxes                               $20,000

Less Interest on Debt ($160,000*60%*8%)                   $7680

Earnings before Profit                                                      $12320

Less Taxes@35%                                                                $4312

Profit after Taxes                                                               $8008

    

Total Equity = $160,000*40% =$64000

So ROE = $8008/ $64000* 100 =12.513%       

The nearest option is option (b) with 12.153% so it will be option (b)

jeff jeffy answered 1 year ago
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