Samuelsons has a debtequity ratio of 22 percent sales of 600

Samuelson\'s has a debt-equity ratio of 22 percent, sales of $6,000, net income of $1,200, and total debt of $6,200. What is the return on equity? 4.26 percent 3.49 percent 19.35 percent O 20.00 percent O 2.20 percent

Solution

Debt Equity Ratio is of 22%(0.22)

Total Debt is of $6,200

Let\'s calculate the value of equity to further calculate the return on equity

Debt/Equity = 6200

6200 / Equity = 0.22

Equity = 6200/0.22 = 28181.81

Net Income= $1,200

Return on equity is (Net Income / Equity) *100

Return on equity = (1200 / 28181.81)* 100 = 4.258%

The answer is Option First (4.26 percent)