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You have been asked to analyze First Union Bank. You have only the following information on the bank at year-end 2021: Net income is $440,000, total debt is $2.0 million, and the bank’s debt ratio is 50 percent. What is First Union Bank’s ROE for 2021? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places. (e.g., 32.16))

Sagot :

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Answer:

22%

Explanation:

Calculation to determine First Union Bank’s ROE for 2021

First step

Debt ratio = 0.50 = $2.0m / Total assets

Second step

Total assets = $2.0m / 0.50

Total assets = $4.000m

Third step

Total equity = $4.000m - $2.0m

Total equity = 2.000m

Now let determine the ROE

ROE = $440000 / $2.000m

ROE=22.00%

Therefore First Union Bank’s ROE for 2021 is 22.00%

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