Return on equity for Delta company is 7%. This means that:
A) Delta will pay a dividend of $0.07 on each ordinary share.
B) The market value of Delta's ordinary shares will increase.
C) Delta earned $0.07 for each dollar of equity.
D) The book value of Delta's ordinary shares will increase by 7%.

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as net income divided by shareholder's equity, expressed as a percentage. Therefore, an ROE of 7% means that Delta earned 7 cents for every dollar of equity held by shareholders. Option A is incorrect as dividends paid out by a company is not solely determined by ROE. Option B may or may not happen as stock price changes are influenced by various factors, not just ROE. Option D is incorrect as book value is not affected by ROE directly.

Return on Equity for Delta Company Is 7