Solved Question: DuPont Identity. X Corp. has net income of $20 million, Sales of $200 million

Get premium Solution to all your Homework Assignments exclusively on writerkingdom. We have CFA/MBA writers to provide customized model answers to your every academic problem

Compare

Description

Question:

DuPont Identity. X Corp. has net income of $20 million, Sales of $200 million, asset turnover of .5, and debt-equity ratio of 30%. a. What is its return on equity? b. If X increases its debt-equity ratio to 50%, what happens to its return on equity?

Answer:

Return on equity(ROE)= Net profit margin * Asset turnover * leverage

net profit margin= net income/Sales=20/200=10%

leverage = Assets/Equity= 30+70/70=1.43

ROE = 10% * 0.5 * 1.43 = 7.15 %

ROE when Debt to equity = 50 %

Assets/ Equity = 100/50 = 2

ROE= 10% * 0.5 * 2 = 10 %

Reviews

There are no reviews yet.

Be the first to review “Solved Question: DuPont Identity. X Corp. has net income of $20 million, Sales of $200 million”

Your email address will not be published. Required fields are marked *