Question: Duval Manufacturing recently reported the following information.


Net income

$420,000



ROA

10%



Interest expense

$155,400


Duval's tax rate is 35%. What is its basic earning power (BEP) ratio?
Round your answer to two decimal places.
  Edit

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