For a given company,the return on invested capital (ROIC )is 13.5 percent,the tax rate is 34 percent,and the pretax cost of debt is 8.8 percent.If its debt-to-equity ratio is equal to 2.0,what is the return on equity (ROE)?
A)16.30 percent.
B)17.80 percent.
C)28.88 percent.
D)25.30 percent.

Question

Quizplus · Accepted Answer

ROE = ROIC + {ROIC – (1 – T) * kd} * D/E
ROE = 13.5% + {13.5% – (1 – 34%) * 8.8%} * 2
ROE = 28.88%

For a Given Company,the Return on Invested Capital (ROIC )Is