Question

Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity

Answer 1

Answer:

the return on equity is 12.67 %

Explanation:

Return on Equity = Net Income / Total Shareholders contribution × 100

where,

debt-equity ratio = 0.40

this means

Debt : Equity = 0.40 : 1

Total ratio = 0.40 + 1 = 1.40

thus,

Equity Weight  = 1/1.40 × 100

                         = 71.43 %

Equity Value = Total Assets × Equity Weight

                     = $1,419,415 × 71.43 %

                     = $1,013,888

therefore,

Return on Equity = $128,470 / $1,013,888 × 100

                            = 12.67 %