A firm has a return on equity of 20% and a total asset turnover of 4.Assuming a debt ratio of 50% and sales of $1 000 000, calculate net profit.
A)$25 000
B)$50 000
C)$75 000
D)$100 000

Question

Quizplus · Accepted Answer

Net profit = Return on equity * EquityEquity = Assets / Debt ratioAssets = Sales / Total asset turnoverEquity = $1,000,000 / 4 / 0.5 = $500,000Net profit = 0.20 * $500,000 = $100,000

A Firm Has a Return on Equity of 20% and a Total