Lawn Care, Inc., has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity

38.96%

Explanation:

Return on equity is computed as = (Net income / Shareholder's equity) × 100

But,

Net income = Sales - costs - depreciation - interest (1 - tax rate)

Net income = $367,400 - $183,600 - $48,600 - $39,200 (1 - 25%)

Net income = $72,000

Current asset = Total assets - Net fixed assets

Current asset = $422,100 - $264,500

Current asset = $157,600

Net working capital = Current asset - Current liabilities

$22,300 = $157,600 - Current liabilities

Current liabilities = $135,300

Total liabilities = long term debt + Current liabilities

Total liabilities = $102,000 + $135,300

Total liabilities = $237,300

Shareholder's equity = Total assets - Total liabilities

Share holder's equity = $422,100 - $237,300

Shareholder's equity = $184,800

Return on equity = ($72,000/$184,800) × 100

Return on equity = 38.96%