If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of 2,000,000, what is its return on equity (ROE)?
If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of 2,000,000, what is its return on equity (ROE)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Understanding Return on Equity (ROE)**
### Problem Statement:
If Turnpoint Inc. has a net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of $2,000,000, what is its return on equity (ROE)?
### Multiple Choice:
- 13.3%
- 2%
- 66.7%
- 8%
### Solution:
Return on Equity (ROE) is calculated using the following formula:
\[ \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \]
#### Step-by-Step Solution Process:
1. **Calculate the Shareholders' Equity**
\[ \text{Shareholders' Equity} = \text{Total Assets} - \text{Total Debt} \]
\[ \text{Shareholders' Equity} = \$5,000,000 - \$2,000,000 \]
\[ \text{Shareholders' Equity} = \$3,000,000 \]
2. **Calculate ROE**
\[ \text{ROE} = \frac{\$400,000}{\$3,000,000} \times 100 \]
\[ \text{ROE} = \frac{400,000}{3,000,000} \times 100 \]
\[ \text{ROE} = 0.1333 \times 100 \]
\[ \text{ROE} = 13.3\% \]
Therefore, the correct answer is 13.3%.
### Answer:
- 13.3%
This information is to help users understand how to calculate the Return on Equity using given financial data from a company. These steps can be applied universally to measure the profitability of any other business in relation to its equity.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffa0073c4-6425-40d1-a8ed-c26ddcc2ccc0%2Fd431ca48-88fa-4738-a5b4-3fe44571c8b1%2Fb0xbjms_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Understanding Return on Equity (ROE)**
### Problem Statement:
If Turnpoint Inc. has a net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of $2,000,000, what is its return on equity (ROE)?
### Multiple Choice:
- 13.3%
- 2%
- 66.7%
- 8%
### Solution:
Return on Equity (ROE) is calculated using the following formula:
\[ \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \]
#### Step-by-Step Solution Process:
1. **Calculate the Shareholders' Equity**
\[ \text{Shareholders' Equity} = \text{Total Assets} - \text{Total Debt} \]
\[ \text{Shareholders' Equity} = \$5,000,000 - \$2,000,000 \]
\[ \text{Shareholders' Equity} = \$3,000,000 \]
2. **Calculate ROE**
\[ \text{ROE} = \frac{\$400,000}{\$3,000,000} \times 100 \]
\[ \text{ROE} = \frac{400,000}{3,000,000} \times 100 \]
\[ \text{ROE} = 0.1333 \times 100 \]
\[ \text{ROE} = 13.3\% \]
Therefore, the correct answer is 13.3%.
### Answer:
- 13.3%
This information is to help users understand how to calculate the Return on Equity using given financial data from a company. These steps can be applied universally to measure the profitability of any other business in relation to its equity.
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