Q1: Consider a retail firm with a net profit margin of 3.66%?, a total asset tur
ID: 2827526 • Letter: Q
Question
Q1:
Consider a retail firm with a net profit margin of 3.66%?, a total asset turnover of 1.72?, total assets of $45.6 ?million, and a book value of equity of $17.1 million.
a. What is the? firm's current? ROE?
b. If the firm increased its net profit margin to 4.47%?, what would be its? ROE?
c.? If, in? addition, the firm increased its revenues by 20% ?(maintaining this higher profit margin and without changing its assets or? liabilities), what would be its? ROE?
a. What is the? firm's current? ROE?
The? firm's current ROE is ???%. (Round to one decimal? place.)
b. If the firm increased its net profit margin to 4.47%?, what would be its? ROE?
The new ROE would be ???%. (Round to one decimal? place.)
c.? If, in? addition, the firm increased its revenues by 20% (maintaining this higher profit margin and without changing its assets or? liabilities), what would be its? ROE?
The new ROE would be ???%. (Round to one decimal? place.)
Explanation / Answer
a. profit= 1.72*45.6*3.66% = 2.8706 million
the? firm's current? ROE = 2.8706/17.1 = 16.79%
b. profit = 1.72*45.6*4.47% = 3.5059 million
the? firm's current? ROE = 3.5059/17.1 = 20.50%
c. Return on equity = 1.20*50.20% = 24.60%
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