Chapter 12, Problem 10P

a)

Summary Introduction

To determine: Return on equity (ROE)

Explanation of Solution

Calculation of return on equity:

$\begin{array}{c}\text{ROE}=\frac{\text{Net}\text{income}}{\text{Total}\text{equity}}\\ =\frac{\$5,000}{\$183,000-\$155,000}\\ =\frac{\$5,000}{\$28,000}\\ =17.86\%\end{array}$

Therefore, return on equity is 17.86%

b)

Summary Introduction

To determine: Return on assets (ROA).

Explanation of Solution

Calculation of ROA:

$\begin{array}{c}\text{ROA}=\frac{\text{Net}\text{income}}{\text{Total}\text{assets}}\\ =\frac{\$5,000}{\$183,000}\\ =2.73\%\end{array}$

Therefore, return on assets is 2.73%

c)

Summary Introduction

To determine: Asset utilization.

Explanation of Solution

Calculation of asset utilization:

$\begin{array}{c}\text{Asset}\text{utilization}=\frac{\text{Interest}\text{income}+\text{non-interest}\text{income}}{\text{Total}\text{assets}}\\ =\frac{\$20,000+\$2,000}{\$183,000}\\ =12.02\%\end{array}$

Therefore, asset utilization is 12.02%

d)

Summary Introduction

To determine: Equity multiplier.

Explanation of Solution

Calculation of equity multiplier:

$\begin{array}{c}\text{Equity multiplier}=\frac{\text{Total}\text{assets}}{\text{Total}\text{shareholder's}\text{equity}}\\ =\frac{\$183,000}{\left(\$12,000+\$4,000+\$12,000\right)}\\ =6.54\text{X}\end{array}$

Therefore, equity multiplier is 6.54X

e)

Summary Introduction

To determine: Profit margin.

Explanation of Solution

Calculation of profit margin:

$\begin{array}{c}\text{Profit margin}=\frac{\text{Net income}}{\text{Sales}}\\ =\frac{\$5,000}{\$20,000+\$2,000}\\ =22.73\%\end{array}$

Therefore, profit margin is 22.73%

f)

Summary Introduction

To determine: Interest expense ratio.

Explanation of Solution

Calculation of interest expense ratio:

$\begin{array}{c}\text{Interest expense ratio}=\frac{\text{EBIT}}{\text{}\text{Total Interest}\text{expense}}\\ =\frac{\$11,000}{\left(\$20,000+\$2,000\right)}\\ =9.09\%\end{array}$

Therefore, interest expense ratio is 9.09%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

Explanation of Solution

Calculation of provision for loan loss ratio:

$\begin{array}{c}\text{Provision for loan loss ratio}=\frac{\text{Provison}\text{for}\text{loans}}{\text{Net-charge offs}}\\ =\frac{\$2,000}{\$20,000+\$2,000}\\ =9.09\%\end{array}$

Therefore, provision for loan loss ratio is 9.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

Explanation of Solution

Calculation of non-interest expense ratio:

$\begin{array}{c}\text{Non-interest expense ratio}=\frac{\text{Non-interest expense}}{\text{Interest}\text{income}+\text{non-interest}\text{income}}\\ =\frac{\$1,000}{\$20,000+\$2,000}\\ =4.55\%\end{array}$

Therefore, non-interest expense ratio is 4.55%

i)

Summary Introduction

To determine: Tax ratio.

Explanation of Solution

Calculation of tax ratio:

$\begin{array}{c}\text{Tax}\text{ratio}=\frac{\text{Taxes}}{\text{Net income}}\\ =\frac{\$3,000}{\$20,000+\$2,000}\\ =13.64\%\end{array}$

Therefore, tax ratio is 13.64%