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Date Posted: 08:08:27 02/14/03 Fri
Author: Dr. D.
Subject: Additional Problems and questions 5.13 (p. 169)

Again, I've had a number of questions about a problem, so to save time, here's the solution:

Since the firm has no debt, it pays no interest (therefore EBIT = EBT), and ROA=ROE. So, using the Dupont Identity, ROA=NPM x TATO:

First, calculate Net Income: EBIT = EBT (see above) = $1500
==> Net Income = 1500 (1-.30) = $1,050
Next, calculate NPM = 1050/5000
Finally,
ROA = NPM x TATO = 0.21 x 2.0 = 42%

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