Roland & Company has a new management team that has developed an operating plan to improve upon last year's ROE. The new plan would make the debt ratio 55%, which will result in interest charges of $7,000 per year. EBIT is projected to be $25,000 on sales of $270,000, it expects to have a total assets turnover ratio of 3.0, and the average tax rate will be 40%. What does Roland & Company expect its ROE to be? a. 21.82% b. 26.67% c. 44.44% d. 51.25% e. 17.65%

Roland & Company expect its ROE to be 26,67%

Explanation:

In order To calculate Return on Equity we need first ti calculate the following:

First taking Total asset Turnover ratio = Sales / Total Assets = 3.0, putting in values we get  3.0 = 270,000 / Total Assets

Total Assets = 270,000 / 3.0

Total Assets = 90,000

Secondly

Total liabilities / Total Assets = 55%  debt radio, hence 55% = Total liabilities / 90,000

Total liabilities = 55%*90,000

Total liabilities = 49,500

The next step is to calculate the Shareholders equity which is Total Assets - Total liabilities

Sharholders equity = 90,000-49,500 = 40,500

Now we can calculate the net income

Net income = EBIT- Interest - tax

Net Income = 25,000-7000 = 18,000 - (1-40%) = 10,800

Net income = 10,800

Finally, we can calcuate theReturn on Equity = Net Income / shareholders equity

ROE = 10,800 / 40,500

ROE = 26.67%

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know