FIRM A AND FIRM B HAVE DEBT-TOTAL ASSET RATIOS OF 60 PERCENT AND 40 PERCENT AND RETURNS ON TOTAL ASSETS OF 20 PERCENT AND 30 PERCENT, RESPECTIVELY. WHICH FIRM HAS GREATER RETURN ON EQUITY?
ROE = ROA X Assets/Equity
We are given the Debt/Assets ratio
Now Equity/Assets = ...
The solution explains how to calculate the return on equity