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Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 5 what...

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Finance

Keller Cosmetics maintains an operating profit margin of 8% andasset turnover ratio of 5 what is it ROA?If its debt equity ratiois 1. Its interests payments and taxes each 9,500, and EBIT is27,500. What is it ROE?

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3.9 Ratings (436 Votes)

a.

ROA = Asset turn over x Operating profit margin

         = 5 x 0.08 = 0.4 or 40 %

b.

Debt/Equity = 1

Debt = Equity

Total assets = Debt + Equity = 2 x Equity

ROE = Assets/Equity x ROA x Debt Burden = Assets/Equity x ROA x Net Income/Income after tax

                                                          = 2 x 0.4 x ($ 27,500 - $ 9,500 - $ 9,500)/ ($ 27,500 - $ 9,500)

                                                          = 0.8 x $ 8,500/$ 18,000

                                                          = 0.8 x 0.472222222222222 = 0.377777777777778 or 37.78 %
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Transcribed Image Text

Keller Cosmetics maintains an operating profit margin of 8% andasset turnover ratio of 5 what is it ROA?If its debt equity ratiois 1. Its interests payments and taxes each 9,500, and EBIT is27,500. What is it ROE?

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