Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its...
Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 52.5%. Based on the DuPont equation, what was Vaughn's ROE?
Select the correct answer.
Homework Answers
First we will calculate the debt as per below:
Debt to total assets ratio = Debt / Total assets
Putting the given values in the above formula, we get,
52.5% = Debt / $210000
Debt = $210000 * 52.5% = $110250
Next, we will calculate the equity as per below:
Total assets = Debt + Equity
$210000 = $110250 + Equity
Equity = $210000 - $110250 = $320250
As per Du Pont equation,
ROE = Net income / Sales * Sales / Total assets * Total assets / Equity
Putting the gven values in the above equation, we get,
ROE = $17832 / $315000 * $315000 / $210000 * $210000 / $320250 * 100
ROE = $17832 / $320250 * 100
ROE = 5.57%
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