Homework Answers
Rate of return on equity is calculated by dividing the Net Income by Share holder's equity, where shareholders equity is company's assets minus debt. ROE is almost same as ROA ( return on assets. In this case ROA is 12% and rate of interest paid is 7% which tells us that there are more debts than equity.
More debts and less equity will provide less funds to shareholders. ROA will be more and ROE will be less because less shareholders funds.
Business rate of return on equity will be less than its rate of return on assets.
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