D Question 17 5 pts Sally is thinking about starting a new business. The company

Question

D Question 17 5 pts Sally is thinking about starting a new business. The company would require $700,000 of assets, financed with 40% debt and 60% equity. She will go forward only if she thinks the firm can provide an ROE of at least 15.1%. Operating at a profit margin of 12%, what is the minimum amount of sales that must be expected to support starting the business? Your answer should be between 472000 and 595000, rounded to even dollars (although decimal places are okay), with no special characters. DQuestion 18 5 pts

Explanation / Answer

Net asset= $700000

here in the case, Sally has financed the business by 40% of the debt and 60% of equity.

This gives us the total equity of $420000($700000*60%)

The required ROE = 15.1% = Net Income / Shareholders Equity

Hence, the required Net Income = Shareholders equity * 15.1%

= $63420

Profit Margin = 12% = Net Income /Sales *100

Sales = 63420/12%

Sales = $528500

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