Taken from Schweser: Use the following information for RGB, Inc.: EBIT/Sales = 10% Tax Retention Rate = 60% Sales/assets = 1.8x Current Ration = 2x Interest/Assets = 2% Assets/Equity = 1.9x RGB, Inc’s ROE is closest to: A. 10.5% B. 11.32% C. 12.16% D. 18.24% I got 20.1% based on the following: (0.1*1.8)-(0.02)(1.9) Schweser states the correct answer is D and utilzes the same formula. Where am I going wrong here?
It works when you split the calc out: ie (0.1*1.8) - 0.02) = 0.16 Therefore: 0.16 * 0.6 * 1.9 = 18.24%
maybe you’re punching in the numbers incorrectly? i’m doing exactly as your equation states and getting 18.24%
I must have been keying it wrong. Just tried it again in excel and it worked. Long day. Thanks for the help guys.
brianr Wrote: ------------------------------------------------------- > Taken from Schweser: > > Use the following information for RGB, Inc.: > > EBIT/Sales = 10% > Tax Retention Rate = 60% > Sales/assets = 1.8x > Current Ration = 2x > Interest/Assets = 2% > Assets/Equity = 1.9x > > RGB, Inc’s ROE is closest to: > > A. 10.5% > B. 11.32% > C. 12.16% > D. 18.24% > > I got 20.1% based on the following: > > (0.1*1.8)-(0.02)(1.9) > > Schweser states the correct answer is D and > utilzes the same formula. > > Where am I going wrong here? ((.1*1.8)-.02)*.6*1.9