Answer: 30%
Explanation:
From the question, we are informed that a firm has a tax burden of 0.7, a leverage ratio of 1.7, an interest burden of 0.9, and a return-on-sales ratio of 11% and that the firm generates $2.58 in sales per dollar of assets.
The ROE will be:
= Tax burden × margin × leverage × interest burden × turnover
where
Tax burden = 0.7
margin = 11% = 0.11
Leverage = 1.7
interest burden = 0.9
Turnover = 2.58
ROE = 0.7 × 0.11 × 1.7 × 0.9 × 2.58
= 0.30
= 30%
