Answer:
It will improve the ROE by 5.29% to 18.34% from 13.05%
Explanation:
<u>current values</u>
assets 355,000
sales 403,000
net income 28,250
debt to assets = 39%
debt = assets x 39% = 355,00 x .39 = 138,450
equity = assets - debt = 355,000 - 138,450 = 216,550
<u>Current ROE</u>
net income / own funds (equity)
28,250/216,500 = 0,1304849 = 13.05%
<u>With the proposition of reducing assets to 252,500</u>
debt = assets x 39% = 252,500 x .39 = 98,475
equity = assets - debt = 252,500 - 98,475 = 154,025
<u>proposition expected ROE</u>
28,250/154,025 = 0,183411783 = 18.34%
<em>Change in ROE 18.34 - 13.05 = 5.29</em>
