Hello, What is meant by interest expense rate? Is it interest expense/total assets or is it another formula? see exercice below A company has published the following results for the years ended 2002 and 2003: 2003 operating margin 16% Asset turnover 1.2x INTEREST RATE EXPENSE 11% Leverage multiplier 1.5x Tax retention rate 0.7 Calculate ROE for 2003. The answer is 8.61 and the calculation is ((0,16*1.2)-0.11)x1.5x0.7)= 8.61% suggesting that interest expense rate = interest expense/av total asset. Does this ratio exists?
weird question, never heard of of int/assets The way I would do this question is (16%-11%)x.07x1.2x1.5 which is incorrect according to the answer.
Based on the way you’ve written the info from the question, “Interest Rate Expense” is “Interest Expense / Assets”. Another way of calculating ROE: = [(EBIT/Sales)(Sales/Assets) - (IntExp/Assets)]*(Assets/Equity)*(Tax Retention) = [(16%)(1.2) - (11%)]*(1.5)(0.7) = 8.61%