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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 Summary

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

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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
=12%
b. The debt equity ...

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