The Board of Directors is dissatisfied with last year's ROE of 15%. If the profit margin and asset turnover remain unchanged at 8% and 1.25 respectively, by how much must the total debt ratio increase to achieve 20% ROE? A. Total debt ratio must increase by 44% B. Total debt ratio must increase by 4% C. Total debt ratio must increase by 5% D. Total debt ratio must increase by 50%

The Board of Directors is dissatisfied with last year's ROE of 15%. If the profit margin and asset turnover remain unchanged at 8% and 1.25 respectively, by how much must the total debt ratio increase to achieve 20% ROE? A. Total debt ratio must increase by 44% B. Total debt ratio must increase by 4% C. Total debt ratio must increase by 5% D. Total debt ratio must increase by 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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Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 21,000 Assets $ 9,000 Debt $ 4,900 Costs 13,800 Equity 4,100 Net income $ 7,200 Total $ 9,000 Total $ 9,000 The company has predicted a sales increase of 10 percent. It has predicted that every item on the balance sheet will increase by 10 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here? Multiple Choice $16,820 $7,494 $7,498 $7,490 $7,510
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