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21 December, 21:31

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity? a. 18.91 percentb. 12.67 percentc. 18.28 percentd. 22.11 percente. 21.55 percent

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  1. 21 December, 21:35
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    21.55 percent

    Explanation:

    Profit margin = Net Income / Net Sales

    Net Income = Profit Margin X Net Sales

    Net Income = 13.2% X 618,900 = $81,695

    Asset Turnover rate = Net Sales / Average total assets

    Average total assets = Net Sales / Asset Turnover rate

    Average total assets = 618900 / 1.54 = 401,883

    Equity Multiplier = Total assets / shareholder's equity

    Shareholder's equity = Total Assets / Equity multiplier

    Shareholder's equity = 401,833 / 1.06 = $379,135

    Return on Equity = net Income / shareholder's equity

    Return on Equity = 81,695 / 379135 = 0.2155 = 21.55%
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