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    Calculate Return on Equity & Profit Margin

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    Part 1

    You are given the following information about a firm: The growth rate equals 8 percent; return on assets (ROA) is 10 percent; the debt ratio is 20 percent; and the stock is selling at $36. What is the return on equity (ROE)?

    Part 2

    Retailers Inc. and Computer Corp. each have assets of $10,000 and a return on common equity equal to 15%. Retailers has twice as much debt and twice as many sales relative to Computer Corp. Retailers' net income equals $750, and its total asset turnover is equal to 3. What is Computer Corp.'s profit margin?

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    Solution Preview

    Please see the attached Excel spreadsheet.

    Part 1

    Return on Equity = Net Income / Total Equity

    Return on Assets = Net Income / Total Assets

    Debt Ratio = Total Debt / Total Assets

    Total Assets 50
    Total Debt 10
    Net Income 5
    Total ...

    Solution Summary

    The expert calculates the return on equity and profit margins.