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
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
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter21: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 5MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....
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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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