Question

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 17.5%. The firm finances using only debt and common equity, and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE

Answer 1

the ROE is 10.133%

Step-by-step explanation:

The computation of the ROE is shown below:

Total Equity =Total Assets × (1 -Debt to Total Assets Ratio)

= $250,000 × (1 - 0.25)

= $187,500

Now

ROE = Net Income ÷ Total Equity

= $19,000 ÷ $187,500

= 10.133%

Hence, the ROE is 10.133%