Question

Bamp Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity? A. 6.77 percent B. 5.93 percent C. 8.95 percent D. 12.21 percent E. 14.09 percent

Answer 1

Answer:

Option C is correct (8.95%)

Return on equity is 8.95%

Explanation:

Option C is correct (8.95%)

Return on Equity:

It is the measure of how well company is making profit in relation to stock holder equity.

General Formula formula for return on equity is:

ROE= Net Income/Shareholder Equity

In our Case:

Formula will become:

$ROE=\frac{Net\ Income}{Sales*Capital\ Intensity\ Ratio}* Equity\ Multiplier$

Net Income= $48,200

Sales=$ 947,100

capital intensity ratio=0.87

equity multiplier=1.53

$ROE=\frac{\ 48,200}{\ 947,100*0.87}*1.53\\ROE=0.08950\\ROE=8.95\%$

Return on equity is 8.95%