79. The Amer Company has the following characteristics: Sales: $1,000 Total Assets: $1,000 Debt/Total Assets: 35% EBIT: $ 200 Tax rate: 40% Interest rate on total debt: 4.57% What is Amer's ROE? a. 11.04% b. 12.31% c. 16.99% d. 28.31% e. 30.77% c ANSWER: RATIONALE: Calculate debt and equity: Debt = D/A × TA = 0.35($1,000) = $350. Equity = TA Debt = $1,000− $350 = $650. − Calculate net income and ROE: Net income = (EBIT I)(1 T) = [$200 0.0457($350)](0.6) = $110.4. − − − ROE = $110.4/$650 = 16.99%. Medium DIFFICULTY: ROE TOPICS:
79. The Amer Company has the following characteristics: Sales: $1,000 Total Assets: $1,000 Debt/Total Assets: 35% EBIT: $ 200 Tax rate: 40% Interest rate on total debt: 4.57% What is Amer's ROE? a. 11.04% b. 12.31% c. 16.99% d. 28.31% e. 30.77% ANSWER: c RATIONALE: Calculate debt and equity: Debt = D/A × TA = 0.35($1,000) = $350. Equity = TA − Debt = $1,000− $350 = $650. Calculate net income and ROE: Net income = (EBIT − I)(1 − T) = [$200 − 0.0457($350)](0.6) = $110.4. ROE = $110.4/$650 = 16.99%. DIFFICULTY: Medium TOPICS: ROE
Test-Bank-for-CFIN-4-4th-Edition-by-Besley.docx