At the end of year 1 firm XYZ has TA=$325 bn., and it is financed with

At the end of year 1 firm XYZ has TA=$325 bn., and it is financed with debt with a book value of $125 mn. and equity with a book value of $200 mn. The firm must pay 10% interest annually on its debt. In year 2, the firm had a net income of $55 mn.

The firm’s year 2 ROA was (i), and the firm’s year 2 ROE was (ii).
ROA ROE
a. 12.0% 27.5%
b. 12.0% 17.1%
c. 16.9% 27.5%
d. 16.9% 17.1%
FORMULAS: ROA=NI/TA; ROE=NI/BEQ

ANSWER

C