1. If Roten Rooters, Inc., has an equity multiplier of 1.65, total asset turnove
ID: 2818359 • Letter: 1
Question
1. If Roten Rooters, Inc., has an equity multiplier of 1.65, total asset turnover of 1.70, and a profit margin of 4.5 percent, what is its ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
2. SME Company has a debt-equity ratio of .80. Return on assets is 8 percent, and total equity is $532,000.
-a. What is the equity multiplier? (Do not round intermeditae calculations and round your answer to 2 decimal plaes, e.g., 32.16)
-b. What is the return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
-c. What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
3. Pop Evil, Inc.'s net income for the most recent year was $19,609. The tax rate was 23 percent. The firsm paid $3,881 in total interest expense and deducted $5,191 in depreciation expense. What was the cash coverage ratio for the year? (Do not round intermeditae calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Answer to Question 1:
Return on Equity = Equity Multiplier * Total Asset Turnover * Profit Margin
Return on Equity = 1.65 * 1.70 * 4.50%
Return on Equity = 12.62%
Answer to Question 2:
Debt-Equity Ratio = 0.80
Equity Multiplier = 1 + Debt-Equity Ratio
Equity Multiplier = 1 + 0.80
Equity Multiplier = 1.80
Return on Equity = Equity Multiplier * Return on Assets
Return on Equity = 1.80 * 8%
Return on Equity = 14.40%
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