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viktelen [127]
3 years ago
8

A firm has a profit margin of 6% and an equity multiplier of 1.5. Its sales are $230 million, and it has total assets of $115 mi

llion. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.
Business
1 answer:
Ket [755]3 years ago
7 0

Answer:

18%

Explanation:

In this question, we use the DuPont Analysis which is shown below:

ROE = Profit margin × Total assets turnover × Equity multiplier

ROE = 6% × 2 × 1.5

        = 18%

The total assets turnover is shown below:

= Sales ÷ total assets

= $230 million ÷ $115 million

= 2

Simply we apply the ROE formula in which the profit margin is multiplied with the total assets turnover and the equity multiplier

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Hello,

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