Question

Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets?

A. 5.56 percent
B. 13.67 percent
C. 8.06 percent
D. 17.41 percent
E. 15.24 percent

Answer 1

The return on assets (ROA) for Tessler Farms is calculated using the return on equity (ROE) and the debt-equity ratio. By applying the formula ROA = ROE / (1 + D/E) with the given values, the ROA is determined to be 5.56 percent.

Step-by-step explanation:

To calculate the return on assets (ROA) for Tessler Farms, we can use the return on equity (ROE) and the debt-equity ratio (D/E) provided in the question. The formula to do this is ROA = ROE / (1 + D/E).

Given the ROE is 11.28 percent and the debt-equity ratio is 1.03, we can substitute these values into the formula:

ROA = 11.28% / (1 + 1.03)

ROA = 11.28% / 2.03

ROA = 5.56%

Thus, the return on assets for Tessler Farms is 5.56 percent, which corresponds to option A.