Q.3877 ABC Ltd. is a US-based food processing firm. The firm has a ROA of 10%, total assets equal to $5, equity capital equal to $2. The firm’s cost of debt is 3%. Calculate the firm’s ROE. | Financial Risk Manager Part 2 Quiz - LeetQuiz
Financial Risk Manager Part 2
Explanation:
The firm’s leverage = EA=EE+D=1+ED =25=2.5
ROE = (ROA × Leverage ratio) − [(Leverage ratio − 1) × cost of debt]
= (0.10×2.5)−[(2.5−1)×0.03]=0.205 or $20.5%$
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Q.3877 ABC Ltd. is a US-based food processing firm. The firm has a ROA of 10%, total assets equal to $5, equity capital equal to $2. The firm’s cost of debt is 3%. Calculate the firm’s ROE.
