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fredd [130]
3 years ago
10

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's t

otal-debt-to-total-capital ratio was 15.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE
Business
1 answer:
anzhelika [568]3 years ago
7 0

Answer:

8.94%

Explanation:

Firstly, we will need to find total equity and total debt of Harrington Inc inorder to apply the Dupont equation for getting ROE

Harrington's total debt = 15.00 % × $250,000

= $37,500

Harrington's total equity will be; applying accounting equation

Asset = Liabilities + Owner's equity

Owner's equity = Assets - Liabilities

= $250,000 - $37,500

= $212,500

Therefore, using the Dupont equation, we can calculate the ROE as;

(NI/Sales) × (Sales/Total assets) × (Total assets/Total common equity)

= 19,000/325,000 × 325,000 /250,000 × 250,000/212,500

= 8.94%

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