USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available:
Estimated profit margin = 15%
Total asset turnover = 2
Financial leverage = 1.2
Estimated dividend payout ratio = 75%
Required rate of return = 14%
Estimated EPS = $2.50
-Refer to Exhibit 9.5. Calculate the firm's ROE.
A) 36%
B) 25%
C) 15%
D) 10%
E) 8%

Question

Quizplus · Accepted Answer

ROE (Return on Equity) can be calculated using the DuPont formula, which is: ROE = Profit Margin * Total Asset Turnover * Financial Leverage. Substituting the given values: ROE = 15% * 2 * 1.2 = 36%.