The Amer Company has the following characteristics: Sales $1,000 TotalAssets $1,

Question

The Amer Company has the following characteristics: Sales                                 $1,000 TotalAssets                      $1,000 Total Debt/TotalAssets        35% EBIT                                 $200 TaxRate                              40% Interest Rate on Total Debt   4.57% What is Amer's ROE? The Amer Company has the following characteristics: Sales                                 $1,000 TotalAssets                      $1,000 Total Debt/TotalAssets        35% EBIT                                 $200 TaxRate                              40% Interest Rate on Total Debt   4.57% What is Amer's ROE?

Explanation / Answer

Income Statement

Total Debt / Total Assets =35% Total Debt / $1,000 = 0.35 Total Debt = $1,000 * 0.35  = $350 Total Debt = $350 Interest on Debt = $350 * 4.57% Interest on Debt = $16

Income Statement

EBIT $200.00 Less: Interest $16.00 EBT $184.00 Less: Tax (40%) $73.60 Net Income $110.40 ROE = Net Income / Shareholder'sEquity ROE = $110.40 / ($1,000 - $350) ROE = 0.1698 (or)16.98%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.