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Return on total equity (net income / total equity) was ($800,000 / ($2,200,000 + $1,800,000) =) 20%. Under FIFO, net income increases by the increase in the LIFO reserve multiplied by (1 – tax rate). FIFO net income for 2001 was ($800,000 + ($600,000 – $400,000) (1 – 0.40) = ) $920,000. Total equity increases by the amount of accumulated FIFO profits that are added to retained earnings which is calculated by multiplying the amount of the ending LIFO reserve by (1 – tax rate) for an increase of (($600,000) × (1 – 0.40) =) $360,000. Total equity is ($2,200,000 + $1,800,000 + $360,000 =) $4,360,000. FIFO return on total equity is ($920,000 / $4,360,000 =) 21.1%.