To calculate the Return on Equity (ROE) for Atlantic Corp., we use the formula:

$\text{ROE} = \frac{\text{Net Income}}{\text{Equity}} \times 100$

Step 1: Calculate Net Income

Net income is derived from the Earnings Before Interest and Taxes (EBIT), with adjustments for interest and taxes.

$\text{Net Income} = (\text{EBIT} - \text{Interest}) \times (1 - \text{Tax Rate})$

Where:

• EBIT for Atlantic Corp. = 582
• Debt for Atlantic Corp. = 420
• Interest rate = 10%
• Tax rate = 40%

The interest payment is calculated as:

$\text{Interest} = \text{Debt} \times \text{Interest Rate} = 420 \times 0.10 = 42$

Now calculate the Net Income:

$\text{Net Income} = (582 - 42) \times (1 - 0.40) = 540 \times 0.60 = 324$

Step 2: Calculate ROE

Now, calculate ROE using the equity:

$\text{ROE} = \frac{324}{1030} \times 100 = 31.46\%$

The ROE for Atlantic Corp. is 31.46.

Would you like more details, or do you have any questions? Here are 5 related questions to deepen your understanding:

1. What would happen to ROE if the tax rate increased?
2. How does increasing debt affect ROE, assuming constant EBIT?
3. What is the significance of ROE in assessing company performance?
4. Can high ROE always be considered good for a company's financial health?
5. How does interest rate variability affect the Net Income and ROE?

Tip: ROE can be influenced significantly by financial leverage, so consider both debt and equity when assessing performance.