Northwest Lumber had a profit margin of 6%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE? Select the correct answer. a. 16.29% b. 16.47% c. 16.38% d. 16.20% e. 16.56%

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Business

Remington Waters

31 July, 01:51

Northwest Lumber had a profit margin of 6%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE? Select the correct answer. a. 16.29% b. 16.47% c. 16.38% d. 16.20% e. 16.56%

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Answers (1)

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Berry · Answer 1

Option D is correct (16.20%)

ROE=16.20%

Explanation:

Option D is correct (16.20%)

The formula we are going to use is:

ROE=Total Assets Turnover*Profit Margin*equity Multiplier

Return On Equity (ROE):

It is the measure of how good company or firm is using its investments to generate earnings. The general Formula for ROE is:

ROE=Net Income / Shareholder Equity

In our Case, we will use:

ROE=Total Assets Turnover*Profit Margin*equity Multiplier

ROE=6% * 1.5 * 1.8

ROE=16.20%