78. Assume Corporation is 100 percent equity financed. Calculate the return on equity, given the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30%. a. 25% b. 30% c. 35% d. 42% e. 50% d ANSWER: RATIONALE: NI = $1,500(1 0.3) = $1,050. − Total assets turnover = Sales/TA = 2.0. TA = Sales/2.0 = $5,000/2.0 = $2,500 = Equity. ROE = NI/Equity = $1,050/$2,500 = 42%. Medium DIFFICULTY: ROE TOPICS:
78. Assume Corporation is 100 percent equity financed. Calculate the return on equity, given the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30%. a. 25% b. 30% c. 35% d. 42% e. 50% ANSWER: d RATIONALE: NI = $1,500(1 − 0.3) = $1,050. Total assets turnover = Sales/TA = 2.0. TA = Sales/2.0 = $5,000/2.0 = $2,500 = Equity. ROE = NI/Equity = $1,050/$2,500 = 42%. DIFFICULTY: Medium TOPICS: ROE
Test-Bank-for-CFIN-4-4th-Edition-by-Besley.docx