You are considering investing in Nuran Security Services. You have been able to locate the following...

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You are considering investing in Nuran Security Services. You have been able to locate the following...

You are considering investing in Nuran Security Services. You have been able to locate the following information on the firm: total assets are $18 million, dividend is 0.8 million, retention ratio is 60%, and debt-to-equity ratio is 1.5 times.

Calculate the ROE

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Answer 1

Answer #1

Dividend = $ 0.8 million and Retention Ratio = 60 %

Dividend Payout Ratio = (1-Retention Ratio) = (1-0.6) = 0.4 or 40 % of Net Income

Therefore, Net Income = Dividends / Dividend Payout Ratio = 0.8 / 0.4 = $ 2 million

Total Assets = $ 18 million and Debt to Equity Ratio = 1.5

Therefore, Debt (1.5/2.5) x 18 = $ 10.8 million and Equity = (1/2.5) x 18 = $ 7.2 million

ROE = (Net Income / Equity) x 100 = (2/7.2) x 100 = 27.78 %

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Answer 2

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