AuthorTopic: ROE Problem
cptp
@2010-06-03 20:39:00
Hi ppl...dont know why but i am not getting the correct answer (8%)!! Pls help

Q) Using the following data (in millions), determine the return on equity (ROE):
EBIT = $1.2
Interest Expense = $0.2
Sales = $20.0
Assets = $15.0
Equity = $7.5

Tax Rate = 40%
innosaur
@2010-06-23 21:29:20
ROE=Net Income/Equity=(EBIT-Interest)*(1-Marginal Tax Rate)/Equity=(1.2-0.2)*(1-0.4)/7.5=0.6/7.5=0.08
Note interest expense is tax deductible therefore taxable income should be EBIT after interest.
joggel1982
@2010-06-30 01:31:55
nice short cut, I would have used the long version of calculating ROE, extended Dupond

CFA Discussion Topic: ROE Problem

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I used your notes and passed ... highly recommended!
Lauren

Lauren