A Firm Has an ROA of 14%, a Debt/equity Ratio

question 86

Multiple Choice

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is

• A) 11.18%.
• B) 8.97%.
• C) 11.54%.
• D) 12.62%.

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Definitions:

Tax Purposes

Refers to the specific motives or reasons related to computing taxable income, determining tax liabilities, and fulfilling tax reporting requirements under the law.

Personal/Rental Property

Refer to assets owned for personal use or rented out for income, impacting tax treatment and deductions.

Net Income

The total earnings of an individual or business after all taxes and other deductions have been subtracted.

Section 1202

A section of the Internal Revenue Code that provides a tax benefit for small business stockholders by excluding part of the gain realized on the sale or exchange of qualified small business stock held for more than five years.