Question

A firm has a debt-to-total asset ratio of 75%, $219,000 in debt, and net income of...

A firm has a debt-to-total asset ratio of 75%, $219,000 in debt, and net income of $47,450. Calculate return on equity. (Do not round intermediate calculations.)

Multiple Choice There is not enough information to calculate return on equity.

65%

85%

81%

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Answer #1

Solving the question with given inputs.  

Debt to total assets ratio

75.00%

Debt value

219,000.00

Total assets (Debt value / debt to total assets ratio)

292,000.00

Equity part (100 - Debt to total assets ratio)

25.00%

Equity value (Total assets x Equity part)

    73,000.00

Net income

    47,450.00

ROE (Net income / Equity value)

65.00%

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