Question

Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation a. Butters Corporation has a pront margin of 4.5 percent and its returm on assets (investment) is 15 percent. What is its assets turnover? (Round your answer to 2 decimal places.) Asets tunover ratio times b. If the Butters Corporation has a debt-to-total-assets ratio of 45.00 percent, what would the firm's return on equity be? (Input your answer as a percent rounded to 2 decimal places.) Return on equity c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 40.00 percent? (Input your answer as a percent rounded to 2 decimal places.) Return on equity

Answer 1

solution: Part a: Asset turnover ROI/Profit margin3.33 (0.15/0.045) Part b: ROE-R01 / (1-Debt-to-total assets ratio) 0.15/(1-0.45) 27.27% Part c ROE-ROI / (1-Debt-to-total assets ratio) 0.15/ 1-0.4) 25.00%