Suppose a firm has a growth rate equal to 8 percent, return on assets (ROA) of 10 percent, a debt ratio of 20 percent, and a current stock price of $36. The firm's return on equity (ROE) is:
A)14.0%.
B)12.5%.
C)15.0%.
D)2.5%.
E)13.5%.

Question

Quizplus · Accepted Answer

The Return on Equity (ROE) can be calculated using the formula ROE = ROA / (1 - Debt Ratio). Substituting the given values, ROE = 10% / (1 - 0.20) = 10% / 0.80 = 12.5%.

Suppose a Firm Has a Growth Rate Equal to 8