Question

Gates Appliances has a return-on-assets (investment) ratio of 19 percent. a. If the debt-to-total-assets ratio is 20 percent, what is the return on equity

Answer 1

23.8%

Step-by-step explanation:

Gates appliances has a return-on-assets(investment) of 19%

The debt-to-total-assets ratio is 20%

Therefore, the return on equity can be calculated as follows

Return on equity= Return on assets(investment)/(1-debt/asset)

= 19/(1-20/100)

= 19/(1-0.2)

= 19/0.8

= 23.8%

Hence the return on equity is 23.8%