What Is the ROE for a Firm with Times Interest

Multiple Choice

What is the ROE for a firm with times interest earned ratio of 2, a tax liability of $1 million, and interest expense of $1.5 million if equity equals $1.5 million?

A) -33.33 percent
B) 30.00 percent
C) 33.33 percent
D) 50.00 percent Times interest earned = EBIT/interest = 2
Therefore, EBIT = 3 million because interest = $1.5 million
Net income = EBIT - interest - taxes
= $3 million - $1.5 million - $1 million
= $) 5 million
ROE = net income/equity
= $) 5 million/$1.5 million