Question

Carter Company's return on common equity is 29%. Its sales are $68,000,000, its debt ratio is 45%, and its total liabilities are $15,000,000. What is the firm's return on total assets?

Question 4 options:

	15.95%
	13.05%
	17.61%
	21.20%
	10.87%

Answer 1

Debt ratio = 45%
It means total capital or Total assets = 1
So, Equity = 1-45% = 55%
Total libilities =	15000000
So, Equity = Total liabilities / Debt ratio * Equity
15000000/45% * 55%
18333333.33
Total assets = Total liabilities / Debt ratio *1
33333333.33
Return on equity = 29%
So, Net income or return = Equity * ROE
18333333.33*29%=	5316666.667
Return on Total assets = Net income / Total assets
5316666.667	/ 33333333.33
0.1595	or 15.95%
So, return on total assets is 15.95%

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