Dew Point Demolitions,Inc.generated a 1.23 total asset turnover in its latest fiscal year on assets of $2,112,077.The firm has total liabilities of $950,997.The firm's net profit margin was 10.3%.What is Dew Point's return on equity? Round to the nearest 0.1%.
A)23.1%
B)12.6%
C)5.5%
D)18.2%

Question

Quizplus · Accepted Answer

First, we need to calculate the firm's net sales, which can be found by dividing the total asset turnover by the total assets: 
Net Sales = Total Asset Turnover / Total Assets 
Net Sales =1.23 / 2,112,077 
Net Sales = $1,714,634

Next, we can calculate the firm's return on equity (ROE) using the formula: 
ROE = Net Profit Margin x Total Asset Turnover x Equity Multiplier

To find the equity multiplier, we can divide the total assets by the total equity: 
Equity Multiplier = Total Assets / Total Equity 
Equity Multiplier = 2,112,077 / (2,112,077 - 950,997) 
Equity Multiplier = 2,112,077 / 1,161,080 
Equity Multiplier = 1.817

Now we can calculate the ROE: 
ROE = 0.103 x 1.23 x 1.817 
ROE = 0.237 or 23.7% (rounded to the nearest 0.1%)

Therefore, the best choice is A, 23.1%.