Last year Harrington Inc.had 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 15.0%.The firm finances using only debt and common equity and its total assets equal total invested capital.Based on the DuPont equation,what was the ROE? Do not round your intermediate calculations.
A) 11.09%
B) 8.85%
C) 8.94%
D) 9.03%
E) 7.42%

Question

Quizplus · Accepted Answer

The DuPont equation is ROE = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity). First, calculate Equity: Total Capital = Total Assets = $250,000, Debt = 15% of Total Capital = $37,500, so Equity = $250,000 - $37,500 = $212,500. Then, ROE = ($19,000 / $325,000) * ($325,000 / $250,000) * ($250,000 / $212,500) = 0.05846 * 1.3 * 1.17647 = 0.0894 or 8.94%.

Last Year Harrington Inc