fm4 6 - have the following equation: % . 40 = 40 . = 60 .-...

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Answers and Solutions: 4 - 6 4-8 We are given ROA = 3% and Sales/Total assets = 1.5 × . From Du Pont equation: ROA = Profit margin × Total assets turnover 3% = Profit margin (1.5) Profit margin = 3%/1.5 = 2%. We can also calculate the company’s debt ratio in a similar manner, given the facts of the problem. We are given ROA(NI/A) and ROE(NI/E); if we use the reciprocal of ROE we
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Unformatted text preview: have the following equation: % . 40 = 40 . = 60 .- 1 = A D % . 60 = A E 05 . 1 % _ 3 = A E , so A E- 1 = A D and NI E _ A NI = A E Alternatively, ROE = ROA EM 5% = 3% EM EM = 5%/3% = 5/3 = TA/E. Take reciprocal: E/TA = 3/5 = 60%; therefore, D/A = 1 - 0.60 = 0.40 = 40%. Thus, the firms profit margin = 2% and its debt ratio = 40%....
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