Kindle Fire Prevention Corp. has a profit margin of 6.2 percent, total asset tur
ID: 2817311 • Letter: K
Question
Kindle Fire Prevention Corp. has a profit margin of 6.2 percent, total asset turnover of 2.1, and ROE of 18.34 percent. What is this firm’s debt–equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Kindle Fire Prevention Corp. has a profit margin of 6.2 percent, total asset turnover of 2.1, and ROE of 18.34 percent. What is this firm’s debt–equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
ROE=profit margin*total asset turnover*leverage
18.34=6.2*2.1*leverage
leverage=18.34/(6.2*2.1)
which is equal to
=1.408602151
leverage=total assets/equity
total assets =1.408602151equity
total assets =debt+equity
Hence debt=(1.408602151-1)equity
=0.408602151equity
Hence debt-equity ratio=debt/equity
=0.408602151equity/equity
which is equal to
=0.41(Approx).
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