Consider a retail firm with a net profit margin of 3.42 %, a total asset turnover of 1.88, total assets of $ 45.9 million, an

Question

3 years ago

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Consider a retail firm with a net profit margin of 3.42 %, a total asset turnover of 1.88, total assets of $ 45.9 million, an

d a book value of equity of $ 18.6 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.19 %, what would be its ROE?

Business

1 answer:

love history [14] · Answer 1 · 2022-05-13T05:11:01+03:00

Answer:

The answer is a. $15.88%

b. 19.46%

Explanation:

a. Equity multiplier = total assets /shareholders equity

Equity multiplier = $ 45.9 million/ $ 18.6 million= 2.47

ROE = net profit * asset turnover * Equity multiplier

ROE = 3.42% * 1.88 * 2.47= $15.88%

b. ROE = net profit * asset turnover * Equity multiplier

ROE = 4.19 % * 1.88 * 2.47 = 19.46%

Consider a retail firm with a net profit margin of 3.42 %​, a total asset turnover of 1.88​, total assets of $ 45.9 ​million, an

Consider a retail firm with a net profit margin of 3.42 %, a total asset turnover of 1.88, total assets of $ 45.9 million, an