Answer:
36%
Explanation:
For the computation of the company's return on equity first we need to follow some steps which is shown below:-
Step 1
Earnings before tax = EBIT - Interest
= $452,000 - $152,000
= $300,000
Step 2
Earnings after interest and taxes = Earnings before tax - Tax
= $300,000 - ($300,000 × 40%)
= $300,000 - $120,000
= $180,000
Step 3
Asset turnover ratio = Total revenue ÷ Total assets
3.6 = $4,000,000 ÷ Total assets
Total assets = $1,111,111.11
Step 4
Equity ratio = 1 - Debt ratio
= 1 - 0.55
= 0.45
Step 5
Total Equity = Equity ratio × Total assets
= 0.45 × $1,111,111.11
= $500,000
and finally
Return on Equity = Net income ÷ Equity
= $180,000 ÷ $500,000
= 0.36
or
= 36%
