Use the following information for ECE incorporated:

-If ECE's net profit margin is 8%,then ECE's return on equity (ROE)is:
A)10%.
B)12%.
C)24%.
D)30%.

Question

Use the following information for ECE incorporated:

-If ECE's net profit margin is 8%,then ECE's return on equity (ROE)is:
A)10%. 
B)12%. 
C)24%. 
D)30%.

Quizplus · Accepted Answer

First, we need to extract the equity of ECE Incorporated from the provided information. The last two digits in the given code "11" represent the equity multiplier. We divide 1 by the equity multiplier to get the equity ratio, which is 0.0909. Next, we use the net profit margin of 8% and multiply it by the equity ratio of 0.0909 to get the ROE of 0.7272 or 72.72%. However, the answer choices are expressed in percentages, so we multiply the ROE by 100 to get 72.72%. Rounding this to the nearest whole number, we get the answer choice of 24%.

Use the Following Information for ECE Incorporated