Question

Question 14 10 points Save Anne New Town Insurance Corp. has a profit margin of 9.70 percent, total asset turnover of 1.41, and ROE of 18.76 percent. What is its firm's debt-equity ratio? A 0.37 8 0.03 oc0.73 0.0.33 Question 14 of 20 A Moving to another question wul Save this response

Answer 1

Solution Profit Margin = 970% or 0.097 Total Asset Turnover = 1.41 ROE (Return on Equity) = 18,76 % or 0.1876 frostly Here, we will use Dupont Identity to calculate Equity Multiple. The Dupont Identity is =) Return on Equity = Profit Marginx Total Asset Equity Multiple Turnover x 01876 = 0.097 X 1.41 X Equity Multiple 0.1876 0.09781.41 = Equity Multiple 1.37164583 - Equity Multiple 1.37 (approx) a Equity Multiple Now, we will calculate Debt- Equity with the following formula 3 Ratio

1+ Debt-Equity Ratio - Equity Multiple It Debt-equity Ratio = 1.37 Debt- Equity Ratio = 137 = 0.37 Answer