Keller Cosmetics maintains an operating profit margin of 4.1% and asset turnover ratio of 2.1.

Keller Cosmetics maintains an operating profit margin of 4.1% and asset turnover ratio of 2.1.

a.	What is its ROA? (Round your answer to 2 decimal places.)

ROA

%

b.	If its debt-equity ratio is 1, its interest payments and taxes are each $7,100, and EBIT is $21,900, what is its ROE? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

ROE

%

Explanation:

a.

ROA = asset turnover × operating profit margin = 2.1 × 0.041 = 0.0861 = 8.61%

b.

If debt/equity = 1, then debt = equity, so total assets are twice equity.

ROE =	assets	× ROA × debt burden =	2	× 0.0861 ×	$21,900 − $7,100 − $7,100	= 0.0896 = 8.96%
	equity		1		$21,900 − $7,100