Calculating Return on Equity

Calculating Return on Equity for Lee Sun

Lee Sun has sales of $3,000, total assets of $2,500, and a profit margin of 5 percent. The firm also has a total debt ratio of 40 percent. Let's calculate the return on equity for Lee Sun.

Final answer:

The return on equity is $50 or 2%.

Explanation:

To calculate the return on equity (ROE), we need to use the formula:

ROE = Profit Margin * Total Assets * Total Debt Ratio

Given that the profit margin is 5%, total assets are $2,500, and the total debt ratio is 40%, we can substitute these values into the formula:

ROE = 5% * $2,500 * 40%

ROE = 0.05 * $2,500 * 0.40 = 0.02 * $2,500 = $50

Therefore, the return on equity is $50, which is equal to 2% (50 / 2,500). Since none of the given answer options match this result, none of the options provided are correct.