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14 February, 18:08

A firm has a profit margin of 6% and an equity multiplier of 1.5. Its sales are $230 million, and it has total assets of $115 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.

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Answers (1)
  1. 14 February, 18:37
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    18%

    Explanation:

    In this question, we use the DuPont Analysis which is shown below:

    ROE = Profit margin * Total assets turnover * Equity multiplier

    ROE = 6% * 2 * 1.5

    = 18%

    The total assets turnover is shown below:

    = Sales : total assets

    = $230 million : $115 million

    = 2

    Simply we apply the ROE formula in which the profit margin is multiplied with the total assets turnover and the equity multiplier
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Home » Business » A firm has a profit margin of 6% and an equity multiplier of 1.5. Its sales are $230 million, and it has total assets of $115 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.
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