Last year, Thomas Co. had a profit margin of 10%, total assets turnover of 0.5, and a debt ratio of 20% (the company finances its assets with debt and common equity). This year, the company wats to double ROE. The CFO expects the total assets turnover will remain at 0.5, while the profit margin will increase enough to double ROE. Assume that the profit margin is increased to 15%, what debt ratio will the company need in order to double its ROE?
Last year, Thomas Co. had a profit margin of 10%, total assets turnover of 0.5, and a debt ratio of 20% (the company finances its assets with debt and common equity). This year, the company wats to double ROE. The CFO expects the total assets turnover will remain at 0.5, while the profit margin will increase enough to double ROE. Assume that the profit margin is increased to 15%, what debt ratio will the company need in order to double its ROE?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Last year, Thomas Co. had a profit margin of 10%, total assets turnover of 0.5, and a debt ratio of 20% (the company finances its assets with debt and common equity). This year, the company wats to double ROE. The CFO expects the total assets turnover will remain at 0.5, while the profit margin will increase enough to double ROE. Assume that the profit margin is increased to 15%, what debt ratio will the company need in order to double its ROE?
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