Lee Sun's has sales of $3,450, total assets of $3,150, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?

6.7%

Explanation:

Lee Sun's has sales of $3,450,

Total assets of Lee Sun is $3,150,

Profit margin of 6 percent of sales implies 0.06 * $3,450 = $207

The firm has a total debt ratio of 42 percent, implying that debt is 1/42 of 3,150 = 75.

Equity = Total assets less liabilities; which 3,150 - 75 = $3,075

Therefore return on equity is Profit/Equity = 207/3075 = 6.7%