QUESTION 5 Last year Harrington Inc. had sales of $350,000 and a net income of $18,000,...

Question

Question

Answer 1

Answer #1

The formula for computing ROE using DuPont equation is:

ROE=Profit margin*Total assets turnover*Financial leverage

ROE= Net income/Net sales*Net sales/Average total assets*Total Assets/total equity

= $18,000/ $350,000*$350,000/ $250,000*1/(1-45%)

= 0.0514*1.40*1.8182

= 0.1308*100

= 13.08%.

Answer 2

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