FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

Question
18
American Capital has $375,000 of assets, and uses only common equity capital (zero debt). Sales for the last
year were $420,000, and stockholders recently voted in a new management team that has promised to
lower costs and increase the company's return on equity. Holding everything else constant, what profit
margin would the firm need in order to achieve an ROE of 16.3%?
Your answer should be between 8.54 and 18.22, rounded to 2 decimal places, with no special characters.
expand button
Transcribed Image Text:American Capital has $375,000 of assets, and uses only common equity capital (zero debt). Sales for the last year were $420,000, and stockholders recently voted in a new management team that has promised to lower costs and increase the company's return on equity. Holding everything else constant, what profit margin would the firm need in order to achieve an ROE of 16.3%? Your answer should be between 8.54 and 18.22, rounded to 2 decimal places, with no special characters.
Expert Solution
Check Mark
Step 1

Return on equity (ROE) = Net IncomeEquity Value

Profit margin = Net IncomeSales 

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education