Can you help me solve this general accounting question using valid accounting techniques? Last year, GreenTech Solutions had $450,000 in assets, $30,500 of netincome, and a debt-to-total-assets ratio of 50%. Now suppose the newlyhired CFO convinces the president to increase the debt ratio to 65%. Salesand total assets will not be affected, but interest expenses would increase.However, the CFO believes that better cost controls would be sufficient tooffset the higher interest expense and therefore keep net incomeunchanged.Assuming the president of the firm allows the CFO to increase the debtratio to 65%, what will be the new ROE (Return on Equity)?

Step 1: Detailed Explanation of Return on Equity (ROE) and DuPont EquationReturn on Equity (ROE)…

Answered: Last year, GreenTech Solutions had…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10P

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Last year Chantler Corp. had $200,000 of assets, $20,000 of net income, and a debt-to-total-assets ratio of 30%. Now suppose the new CFO convinces the president to increase the debt ratio to 45%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
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Dubs & Co. has a debt ratio of 0.50, a total assets turnover of 0.25, and a profit margin of 10%. The CEO is unhappy with the current return on equity, and he thinks it could be doubled. This could be accomplished by increasing the profit margin to 14% and 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?
JunJun & Co. has debt ratio of 0.50, a total asset 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? (SHOW SOLUTION) a. 0.75 b. 0.70 c. 0.65 d. 0.55
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Can you help me solve this general accounting problem using the correct accounting process?
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