The Board of Directors of Collins Entertainment, Inc. has been pressuring its CEO to boost ROE. During a recent interview on CNBC, heannounces his plan to improve the firm’s financial performance.He will raise prices on all of the company’s products by 10 percent.He justifies the plan by observing that ROE can be decomposed intothe product of profit margin, asset turnover, and financial leverage. Byraising prices, he will increase the profit margin and thus ROE. Doesthis plan make sense to you? Why or why not?
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