White Knight Enterprises is experiencing a growth rate of 9% with a return on assets of 12%. If the debt ratio is 36% and the market price of the stoc... Accounting MCQs | Accounting MCQs

White Knight Enterprises is experiencing a growth rate of 9% with a return on assets of 12%. If the debt ratio is 36% and the market price of the stock is $38 per share, what is the return on equity?

7.78 %9 %12 %18.75 %Show Result

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Detailed Answer

Answer (D) is correct.
Assume that the firm has $100 in assets, with debt of $36 and equity of $64. Income (return) is $12. The $12 return on assets equates to an 18.75% return on equity ($12 ÷ $64).