Corbin,Inc.had net income of $150,000 on sales of $5,000,000 during 1995.In addition,the firm's total assets were $2,500,000,and its capital structure is comprised of 40% debt and 60% equity.What was Corbin's return on equity in 1995?
A)15%
B)2.5%
C)10%
D)Return on equity cannot be determined with the information provided.

Question

Quizplus · Accepted Answer

First, we need to calculate the total amount of debt and equity in Corbin's capital structure.

Debt = 40% x $2,500,000 = $1,000,000 
Equity = 60% x $2,500,000 = $1,500,000

Next, we can use the formula for return on equity:

Return on Equity = Net Income / Total Equity

Return on Equity = $150,000 / $1,500,000 = 0.1 or 10%

Therefore, the answer is C) 10%.