Questions
MSB-250-300-002 Proctored Final Exam
Single choice
A company has an ROE of 12%, a leverage multiplier of 0.65, and a total asset turnover of 0.88. What is the company’s net margin?
Options
A.57.20%
B.20.97%
C.6.86%
D.13.61%
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Step-by-Step Analysis
To solve this, recall the DuPont identity which links ROE to net margin, asset turnover, and financial leverage: ROE = Net Margin × Asset Turnover × Equity Multiplier (leverage). Here, ROE = 12% (0.12), Asset Turnover = 0.88, and Equity Multiplier (leverage) = 0.65.
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Similar Questions
Company P and Company Q operate in different industries. Company P has an ROE of 18%, while Company Q has an ROE of 12%. Their DuPont components are: Company P: Net profit margin = 3%, Asset turnover = 3.0, Equity multiplier = 2.0 Company Q: Net profit margin = 12%, Asset turnover = 0.5, Equity multiplier = 2.0 Based on DuPont analysis, which of the following statements are correct? I. Company P's higher ROE is driven by superior asset utilization efficiency II. Company Q is more operationally profitable on each dollar of sales III. Both companies have identical capital structures IV. Company P likely operates in a high-volume, low-margin industry such as retail
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