22. A firm has a tax burden of .7, a leverage ratio of 1.5, an interest burden o

Question

22. A firm has a tax burden of .7, a leverage ratio of 1.5, an interest burden of .7, an ATO of 5, and a return on sales of 6%. What is the firm's ROE?

23. The 35 items or less express lane supermarkets has an ATO of 5, and a return on sales of 3%. What is the 35 items or less express lane supermarkets ROA?

24. Suppose that Off-Star currently is selling at $60 per share. You buy 100 shares, borrowing the maximum amount of the purchase price from your broker. If the initial margin is 50% and the maintenance margin is 25%, how low can Off-Star's price fall before you get a margin call? Assume the price fall happen immediately.

Explanation / Answer

22. A firm has a tax burden of .7, a leverage ratio of 1.5, an interest burden of .7, an ATO of 5, and a return on sales of 6%. What is the firm's ROE?

ROE = leverage ratio*ATO*return on sales

ROE = 1.5*5*6%

ROE = 45%

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