Calculate total equity value given the following information: ROE = 8%; Total assets = $1,000,000 and ROA = 5%
A) $625,000
B) $650,000
C) $700,000
D) $750,000
E) $800,000

Question

Quizplus · Accepted Answer

To find the total equity value, use the formula ROE = Net Income / Equity. First, find Net Income using ROA = Net Income / Total Assets, which gives Net Income = ROA * Total Assets = 5% * $1,000,000 = $50,000. Then, using ROE = 8%, solve for Equity: $50,000 / Equity = 8%, which gives Equity = $50,000 / 0.08 = $625,000.

Calculate Total Equity Value Given the Following Information: ROE =