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    Calculating return on equity and return on assets

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    Please help wth the following:

    Felton Beverages maintains a profit margin of 4 percent and a sales-to-assets ratio of 3.

    A. What is its return on assets?

    B. If its debt-equity ratio is 1.0, its interest payments and taxes are each $10,000, and EBIT is $40,000, what is the return on equity?

    Thank you for your assistance.

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    Solution Preview

    Profit Margin =4% this implies Net Income/Sales = 4%
    Sales/Assets = 3

    a. Return on Assets = Net Income / Assets
    (Net Income/Sales) X ( Sales / Assets)
    = 0.04 X 3
    b. The debt equity ...

    Solution Summary

    The solution explains how to calculate the return on equity and assets given some ratios.