Junjun Co. has debt ratio of .50 , total assets turnover of 0.25 , and a profit margin of 10%. The president is unhappy with the current return on equity , and he thinks it could be doubled . This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not change.What new debt ratio along with the 14% profit margin is required to double the return on equity ?a. 0.75 b. 0.65 c. 0.70 d. 0.55

SOLUTION- CURRENT RETURN ON EQUITY = PROFIT MARGIN * ASSET TURNOVER * EQUITY MULTIPLIER . WORKING…

Answered: Junjun Co. has debt ratio of .50 ,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Junjun Co. has debt ratio of .50 , total assets turnover of 0.25 , and a profit margin of 10%. The president is unhappy with the current return on equity , and he thinks it could be doubled . This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not change.

What new debt ratio along with the 14% profit

margin is required to double the return on equity ?

a. 0.75 b. 0.65 c. 0.70 d. 0.55

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