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A firm has an ROE of 9%, a debt/equity ratio of 0.3, a tax rate of 30%, and pays an interest rate of 6% on

A firm has an ROE of 9%, a debt/equity ratio of 0.3, a tax rate of 30%, and pays an interest rate of 6% on its debt. Firms asset turnover is 0.3

-What is firms operating ROA?

-What is the firm Margin

- What is the firms Tax burden?

- What is the firms Leverage factor?

- Given ROA that you found, what percentage of its total ROA firm has to pay as interest?

- What is the firms interest burden?

- Combine all given and found values that you have into the formula. Check that equation holds.

ROE = Tax burden Interest burden Margin Turnover Leverage

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