The Merriam Company has determined that its return on equity is 15 percent. Management is interested in the various components that went into this calculation. You are given the following information: total debt/total assets = 0.35 and total assets turnover = 2.8. What is the profit margin?
A) 3.48%
B) 5.42%
C) 6.96%
D) 2.45%
E) 12.82%

Question

Quizplus · Accepted Answer

The profit margin is calculated as follows:Profit margin = Return on equity / (Total debt/total assets * Total assets turnover)Profit margin = 15% / (0.35 * 2.8)Profit margin = 15% / 0.98Profit margin = 15.31%

The Merriam Company Has Determined That Its Return on Equity