Return on assets = 6.7% and equity multiplier = 2.5% then return on equity will be ______________?
Correct answer: A. 16.75%
- A. 16.75%
- B. 2.68%
- C. 0.37%
- D. 9.20%
Explanation
The DuPont relationship is return on equity = return on assets × equity multiplier. Thus, 6.7% × 2.5 = 16.75%, assuming the multiplier is 2.5 rather than 2.5%.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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