Keller cosmetics maintains an operating profit margin of 7% and asset turnover ratio of 4.

a. what is its roa? (enter your answer as a whole percent.) roa %
b. if its debt-equity ratio is 1, its interest payments and taxes are each $8,200, and ebit is $21,000, what is its roe? (do not round intermediate calculations. enter your answer as a whole percent.) roe %

A) ROA = 28%

B) ROE = 20%

Explanation:

Requirement A

We know,

Return on Asset =

If we break the ROA formula, we can get,

ROA = ×

We know, Profit margin = Net Income ÷ Net Sales; and

Asset Turnover ratio = Net sales ÷ Average total assets

Therefore, ROA = Profit margin × Asset Turnover

Given,

Profit Margin = 7% = 0.07

Asset Turnover = 4.0

Hence, Return on Asset = 0.07 × 4 = 0.28 = 28%

It shows how assets generate income over a period.

Requirement B

We know,

Return on Equity =

If we break the formula, ROE = (Asset ÷ Equity) × (Debt Burden) × ROA

Given,

Debt-Equity ratio = 1

We know, Debt-equity ratio =

As debt-equity ratio is 1, debt = equity

Therefore, assets =  2 times of debt or equity

Debt Burden = Net Income ÷ (EBIT - Interest)

Debt Burden = (EBIT - Interest - Tax) ÷ (EBIT - Interest)

Debt Burden = $(21,000 - 8,200 - 8,200) ÷ $(21,000 - 8,200)

Debt Burden = $4,600 ÷ $12,800

Debt Burden = 0.359375

We have already got ROA from requirement A, ROA = 28% = 0.28

Hence, ROE = (2 ÷ 1) × 0.359375 × 0.28

ROE = 0.20125

ROE = 20%

forbearance of student loan payments. under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. if you don't pay the interest during that period, the interest may be “capitalized,” which means it is added to your principal balance.

the answer is a. $209,000