Q1 Consider a retail firm with a net profit margin of 366 a

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.)

Solution

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%