Question

Lawn Care, Inc., has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity? Multiple Choice 17.06 percent 24.26 percent 15.38 percent 38.96 percent 29.96 percent

Answer 1

Return on equity = ( Net income / shareholders equity) * 100

Net income = ( Sales - costs - depreciation - interest)(1 - tax)

Net income = (367,400 - 183,600 - 48,600 - 39,200)(1 - 0.25)

Net income = $72,000

Current assets = Total assets - net fixed assets

Current assets = 422,100 - 264,500

Current assets = $157,600

Net working capital = Current assets - current liabilities

22,300 = 157,600 - Current liabilities

Current liabilities = $135,300

Total liabilities = Total long term debt + current liabilities

Total liabilities = $102,000 + $135,300

Total liabilities = $237,300

Shareholders equity = Total assets - total liabilities

Shareholders equity = $422,100 - $237,300

Shareholders equity = $184,800

Return on equity = ( $72,000 / $184,800) * 100

Return on equity = 38.96%