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25 May, 19:28

Lee Sun's has sales of $3,450, total assets of $3,150, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?

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  1. 25 May, 19:44
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    6.7%

    Explanation:

    Lee Sun's has sales of $3,450,

    Total assets of Lee Sun is $3,150,

    Profit margin of 6 percent of sales implies 0.06 * $3,450 = $207

    The firm has a total debt ratio of 42 percent, implying that debt is 1/42 of 3,150 = 75.

    Equity = Total assets less liabilities; which 3,150 - 75 = $3,075

    Therefore return on equity is Profit/Equity = 207/3075 = 6.7%
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