Keller Cosmetics maintains an operating profit margin of 8.60% and a sales-to-as
ID: 2720922 • Letter: K
Question
Keller Cosmetics maintains an operating profit margin of 8.60% and a sales-to-assets ratio of 3.10. It has assets of $620,000 and equity of $420,000. Interest payments are $42,000 and the tax rate is 35%.
What is the return on assets? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is the return on equity?
I only need the ROE aka part B and it is not 19.08
Keller Cosmetics maintains an operating profit margin of 8.60% and a sales-to-assets ratio of 3.10. It has assets of $620,000 and equity of $420,000. Interest payments are $42,000 and the tax rate is 35%.
Explanation / Answer
Total assets turnover=
Return on Equity= Profit Margin x Total assets turnover x Financial Leverage
= Profit Margin x Total assets turnover x Total Assets/ Equity
=8.6% x 3.10 x 620,000/420,000
=8.6 % x 3.10 x 1.476
=39.35%
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