Last year Gray Corp. had net sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 45.0%. The firm uses only debt and common equity as financing. Based on the DuPont equation, what was the ROE?
A) 13.82%
B) 14.51%
C) 15.23%
D) 16.00%

Question

Quizplus · Accepted Answer

ROE = (Net Income / Net Sales) x (Net Sales / Total Assets) x (Total Assets / Total Equity)= (19,000 / 325,000) x (325,000 / 250,000) x (250,000 / (250,000 x (1 - 0.45)))= 0.0585 x 1.3 x 2.353= 0.1382 or 13.82%

Last Year Gray Corp