Last year FBGS Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE?
total-debt-to-total-capital ratio=Total debt/Total capital
Hence Total debt=(0.15*250,000)=$37500
Total equity=Total capital-Total debt
=(250,000-37500)=$212500
Profit margin=Net income/Sales
=(19000/325000)=0.058461538
Total asset turnover=Sales/Total assets
=(325000/250,000)=1.3
Equity multiplier=Total asset/Equity
=(250,000/212500)=1.176470588
ROE=Profit margin*Total asset turnover*Equity multiplier
=0.058461538*1.3*1.176470588
=8.94%(Approx).
Last year FBGS Inc. had sales of $325,000 and a net income of $19,000, and its...
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