value: 3.00 points Problem 3-17 DuPont Identity [LO 3] Bethesda Mining Company r
ID: 2813083 • Letter: V
Question
value:
3.00 points
Problem 3-17 DuPont Identity [LO 3]
Bethesda Mining Company reports the following balance sheet information for 2015 and 2016.
Suppose that the Bethesda Mining Company had sales of $2,266,873 and net income of $98,381 for the year ending December 31, 2016.
Calculate ROE using the DuPont identity. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profit margin and return on equity as a percent.)
Balance Sheets as of December 31, 2015 and 2016 2015 2016 2015 2016 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 52,990 $ 67,084 Accounts payable $ 189,422 $ 197,111 Accounts receivable 62,781 83,139 Notes payable 84,520 136,088 Inventory 122,559 188,119 Total $ 273,942 $ 333,199 Total $ 238,330 $ 338,342 Long-term debt $ 236,000 $ 172,750 Owners’ equity Common stock and paid-in surplus $ 219,000 $ 219,000 Fixed assets Accumulated retained earnings 167,635 203,121 Net plant and equipment $ 658,247 $ 589,728 Total $ 386,635 $ 422,121 Total assets $ 896,577 $ 928,070 Total liabilities and owners’ equity $ 896,577 $ 928,070
Explanation / Answer
Profit Margin = Net Income / Sales
Profit Margin = $98,381 / $2,266,873
Profit Margin = 4.34%
Assets Turnover = Sales / Total Assets
Assets Turnover = $2,266,873 / $928,070
Assets Turnover = 2.44
Equity Multiplier = Total Assets / Total Equity
Equity Multiplier = $928,070 / $422,121
Equity Multiplier = 2.20
Return on Equity = Profit Margin * Assets Turnover * Equity Multiplier
Return on Equity = 4.34% * 2.44 * 2.20
Return on Equity = 23.30%
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