A Firm Has a Net Profit/pretax Profit Ratio of 0

question 70

Multiple Choice

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

• A) 7.56%
• B) 15.12%
• C) 20.16%
• D) 30.24%

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Definitions:

Monopolist

A single firm or entity that is the exclusive provider of a good or service, thus controlling its market price.

Lerner Indices

Measures of a firm’s market power based on the difference between price and marginal cost, normalized by the product's price.

Marginal Cost

The increase or decrease in the total cost incurred by producing one more unit of a good or service.

Lerner Index

A measure of a firm's market power, calculated as the difference between price and marginal cost, normalized by price.