Answer:
13.75%
Explanation:
Calculation for what will be the company's return on equity
First step
Asset Turnover Ratio= Net Sales / Total Assets ------(1)
Given Asset Turnover Ratio =2.7
=> 2.7 = 4,000,000/ Total Assets (from equation 1)
=>Total Assets = 1,481,481 ------(2)
Second step
ROE = Net Income / Equity
Net Income = (EBIT - Interest Charges) *(1-tax rate)
Net Income = (356,000 -168,000) *(1-35%)
Net Income = $122,200 --------(3)
Equity = Total Assets *(1-debt ratio)
Equity = 1,481,481*(1-0.4) = $888,889 --------(4)
From equation 3 and 4
ROE = Net Income / Equity
ROE= 122,200/888,889
ROE =0.1375*100
ROE=13.75%
Therefore ROE will be 13.75%
