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Acme Dynamite is maintaining a solid debt ratio of .37 with total assets of $1,250 million....

Acme Dynamite is maintaining a solid debt ratio of .37 with total assets of $1,250 million. If its D/E ratio is .65 and it has NOI of $150 million, what is its return on equity?

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Answer #1

Since company is maintaining solid debt ratio .37 therefore there Debt amount will be:

Debt = Total Assets X Solid Debt Ratio

Debt = $1,250 X .37

Debt = $462.5

And it is given that company's debt equity ratio is .65 therefore company Equity amount would be:

Equity = Debt/Debt Equity Ratio

Equity = $462.5/.65

Equity = $711.54 (Rounded off)

So now we have company's shareholders' equity and NOI is given and by using both we can calculate the Return on Equity:

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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