this is the second time i post the Q please i need the right answer A firm has a

Question

this is the second time i post the Q please i need the right answer

A firm has an ROE of 5%, a debt/equity ratio of 0.5, a tax rate of 40%, and pays an interest rate of 6% on its debt. What is its operating ROA? (Do not round intermediate calculations.Round your answer to 2 decimal places.)

this is the second time i post the Q please i need the right answer

A firm has an ROE of 5%, a debt/equity ratio of 0.5, a tax rate of 40%, and pays an interest rate of 6% on its debt. What is its operating ROA? (Do not round intermediate calculations.Round your answer to 2 decimal places.)

Explanation / Answer

If equity is "X" ,Then debt = .5x

Asset=Debt +equity

1 = .5x +x

1 = 1.5x

x = 1/1.5 = .6667

Equity = .6667

Equity multiplier = asset /equity = 1 / .6667 = 1.4999

ROA =ROE *Equity mulitplier

          = 5 * 1.4999

          = 7.5 %

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