Nikko Corp.'s total common equity at the end of last year was $305,000 and its net income after taxes was $60,000. What was its ROE?

a. 16.87%

b. 17.75%

c. 18.69%

d. 19.67%

e. 20.66%

Return on equity

= Net income after tax x 100

Total common equity

= $60,000 x 100

$305,000

= 19.67%

The correct answer is D

Explanation:

Return on equity is the ratio of net income after tax to total common equity multiplied by 100. The net income amounts to $60,000 while the total common equity is $305,000. The division of net income by total common equity multiplied by 100 gives the return on equity.