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1)Sam's Furniture has a taxable income of $197,400, ROA of 4
1)Sam's Furniture has a taxable income of $197,400, ROA of 4.8 percent, a debt-equity ratio of 0.72, and a very smart CFO. What is the firm’s ROE?
A. 8.26 percent
B. 14.45 percent
C. 11.67 percent
2)Susan Lollipops has inventory of $147,500, equity of $320,000, total assets of $800,780, and net sales of $658,800. What is the common-size percentage for the inventory account?
A. 18.42 percent
B. 46.09 percent
C. 22.39 percent
3)Zoe Homeware gives credit to their customers at a monthly rate of 1.05 percent. What is the effective annual rate of this credit offer?
A. 13.80 percent
B. 14.71 percent
C. 13.35 percent
Expert Solution
According to Chegg guidelines, I can answer only one question as the other questions are not connected and are completely different from the rest of the questions. I am going to answer Question No 1, please post the rest of the question separately.
ROA = 4.8% debt-equity ratio = 0.72
Asset to equity ratio = debt-equity ratio + 1 = Total Debt / Total Equity + 1 = (Total Debt + Total Equity) / Total Equity
We know that Total Debt + Total Equity = Total Asset
Asset to equity ratio = Total Asset / Total Equity = 1 + 0.72 = 1.72
Asset to equity ratio is also known as Equity Multiplier
From the above equation we know that:
ROE = ROA x Equity Multiplier = 4.8% x 1.72 = 8.256% = 8.26%
the firm’s ROE is A. 8.26 percent
PLEASE SEE THE ATTACHED FILE FOR THE COMPLET SOLUTION .
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