Final answer:
The firm's ROA, or Return on Assets, can be calculated by dividing the firm's net profit by its total assets. In this case, the firm earns $0.18 in profit for every $1 of equity, so its ROA is 11.25%.
Step-by-step explanation:
The firm's ROA, or Return on Assets, can be calculated by dividing the firm's net profit by its total assets. In this case, the firm earns $0.18 in profit for every $1 of equity, so its net profit is 18% of its equity. The firm also borrows $0.60 for every $1 of equity, so its total assets are equal to the sum of its equity and its debt.
To calculate the firm's ROA, we can use the formula:
ROA = Net Profit / Total Assets = 18% / (Equity + Debt)
Substituting the given values, the ROA can be calculated as:
ROA = 18% / (1 + 0.60) = 18% / 1.60 = 0.1125 = 11.25%
Therefore, the firm's ROA is 11.25%.