If return on assets is 5.5%, total assets are $3,000 and common equity is $1,050, what is the return on equity?
Correct answer B. 0.1571
Explanation
Using DuPont, ROE equals ROA times the equity multiplier: 5.5% x (3,000 / 1,050) = 5.5% x 2.857, which is about 15.71%.
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