U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 19%. The firm financed 25% percent of its assets using debt. What was the firm's return on common equity? (Round your answer to two decimal places and state it in percentage form.)

Question

Business

Ryleigh Woodward

8 September, 09:43

U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 19%. The firm financed 25% percent of its assets using debt. What was the firm's return on common equity? (Round your answer to two decimal places and state it in percentage form.)

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Answers (1)

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Clark Johnson · Answer 1

Return on Equity = 25.33%

Explanation:

Return on Total Asset = 19%

Debt percent to assets = 25%

Equity percent to assets = 100% - 25% = 75%

Asset = 100%

Return on Total Asset = Net Income / Total Assets

19% = Net Income / 100%

0.19 x 1.00 = Net Income

Net Income = 0.19

Return on Equity = Net Income / Equity

Return on Equity = 0.19 / 75%

Return on Equity = 0.19 / 0.75

Return on Equity = 0.2533

Return on Equity = 25.33%