A firm has a net income pre-tax of $687 million. The tax rate for the firm...
A firm has a net income pre-tax of $687 million. The tax rate for the firm is 32%. The firm has $1,326 million in equity and $1,020 in debt. The interest rate is 8.25%. Compute the return on equity for the firm:
◦(A) 20.92%
◦
◦(B) 30.92%
◦
◦(C) 40.92%
Homework Answers
Pre tax income =$687 million
Less: Interest on debt 1020*8.25% =$84.15
Income before tax =$602.85 million
Less tax =$192.912
Net income =$409.938 millio
Return on equity = Net income/equity
= 409.938/1326
= 30.92%
I.e. B
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