Wildlife Co.reported net income of $8.3 million,interest expense of $.5 million and they are in a 30% tax rate bracket.Their average total assets are $65.8 million and average stockholders' equity is $48.6 million.What is Wildlife's financial leverage percentage?
A)3.7%
B)4.5%
C)4.0%
D)4.7%

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Quizplus · Accepted Answer

The return on equity ratio (17.1%) = Net income ($8.3) F1F1F1S1F1F1F10 Average stockholders' equity ($48.6)Return on assets ratio (13.1%) = Net income ($8.3) + Interest expense net of tax [$.5 F1F1F1S1F1F1F10 (1 - .3)] F1F1F1S1F1F1F10 Average total assets ($65.8)Financial leverage percentage (4.0%) = Return on equity ratio (17.1%) - Return on assets ratio (13.1%)