return on common equity

[cding]

The question is on book 6, page 18. #53

Given the following info

Current assests 40%
Total Debt 40%
Net income 16%
Total assets $2,000
Sales $1,500
Total asset turn over 0.75
(The firm has no preferred stock)

What is the after tax return on common equity?
A. 15%
B. 16%
C. 20%
D. 25%

Is the following procedure correct to get the answer C?

Net Income = 1500*16% = $240
Common equity = 2000*(1-40%) = $1200 (since debt + equity = asset = $2000)

TYVM



Edited 1 time(s). Last edit at Monday, May 14, 2007 at 08:51PM by cding.

 

[ruhi22]

A=L+O.E Equity=Assets-Liab.

Are you really taking the test this June??

(.16*1500)/1200

 

[veerasam]

ROE = Net margin *Asset TO *Leverage = .16*.75/.6=0.2
A=L+E

 

[cding]

lol Yes I am and I wish everyone succeed!

P.S I was editing it when u made your post, but I still appreciate u for helping me out.