Galaxy Inc. has a tax burden ratio of. 75, an interest burden of. 6, a leverage ratio of 1.25, and a return on sales of 10%. This year the firm makes $2.40 in sales per dollar of assets. What is the firm's ROE?

a. 15%

b. 11.5%

c. 13.5%

d. 20%

Return on equity = 13.5 %

Explanation:

given data

tax burden ratio = 0.75

interest burden = 0.6

leverage ratio = 1.25

return on sales = 10%

sales assets = $2.40

to find out

What is the firm's ROE

solution

we get here Return on equity (ROE) that is express as

Return on equity = tax burden ratio * leverage ratio * interest burden ratio * return on sale * sales ... 1

put here value we get

Return on equity = 0.75 * 1.25 * 0.6 * 10% * 2.40

Return on equity = 0.75 * 1.25 * 0.6 * 0.10 * 2.40

Return on equity = 0.135

Return on equity = 13.5 %