Question: Duval Manufacturing recently reported the following information.
Duval's tax rate is 35%. What is its basic earning power (BEP) ratio?
Round your answer to two decimal places.
Answer: ROA = Net Income / Total Assets
or. 0.10 = 420000/TA
or. TA = 420000/0.10 = 4200000
earning before tax = net income/(1 - tax rate) = 420000/(1 - 0.35) = 646153.85
Earnings Before Interest and Taxes =EBIT = 646153.85 + 155400 =801553.85
BEP = EBIT/TA = 801553.85/4200000 = 0.1908 = 19.08% (Ans.) Edit
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