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Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and it

ID: 2629184 • Letter: L

Question

Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 42.5%. Based on the Du Pont equation, what was Vaughn's ROE?

Answer

A. 14.77%

B. 15.51%

C. 16.28%

D. 17.10%

E. 17.95%

Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 42.5%. Based on the Du Pont equation, what was Vaughn's ROE?

Answer

A. 14.77%

B. 15.51%

C. 16.28%

D. 17.10%

E. 17.95%

Explanation / Answer

ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets / Equity) = Net profit margin * Asset Turnover * Financial leverage

total-debt-to-total-assets = 42.5%

total debt = 210000*42.5%

$89250

Total equity = 210000-89250 =$120750

=(17832/315000)*(315000/210000)*(210000/120750)

=14.77%

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