Question

Use the following numbers for Sweat Equity, Inc. (BO) for questions 55-58:

Profit Margin (NI/Sales) 4%

Asset turnover (Sales/Total assets) 8 times

Total liabilities $0

55.______What is BO’s return on equity (ROE)? (BEST answer!)

a. cannot determine from the information given

b. probably can determine from the information given but I have no idea

c. 32%

d. 49%

e. something greater than 50%

56.______BO could improve its return on equity by

a. improving profit margin

b. improving asset turnover

c. applying some financial leverage

d. all of the above

e. some of the above

57.______BO could hurt (i.e., reduce) its return on equity by

a. improving profit margin

b. improving asset turnover

c. applying some financial leverage

d. all of the above

e. some of the above

58.______By “applying some financial leverage” in questions 56 and 57, your insightful instructor means

a. going into the lever business

b. buying Lever Brothers

c. repaying some debt

d. borrowing some money to finance operations

e. selling more common stock

Answer 1

Answer of the above question is given below.

Given,

Profit Margin (NI/Sales) 4%

Asset turnover (Sales/Total assets) 8 times

Total liabilities $0

55.______What is BO’s return on equity (ROE)? (BEST answer!)

a. cannot determine from the information given

b. probably can determine from the information given but I have no idea

c. 32%

d. 49%

e. something greater than 50%

Answer: c.32%

56.______BO could improve its return on equity by

a. improving profit margin

b. improving asset turnover

c. applying some financial leverage

d. all of the above

e. some of the above

Answer: a. Improving profit margin & b. Improving assets turnover  

e. Some of the above will be answer

57.______BO could hurt (i.e., reduce) its return on equity by

a. improving profit margin

b. improving asset turnover

c. applying some financial leverage

d. all of the above

e. some of the above

Answer: c applying some financial leverage

58.______By “applying some financial leverage” in questions 56 and 57, your insightful instructor means

a. going into the lever business

b. buying Lever Brothers

c. repaying some debt

d. borrowing some money to finance operations

e. selling more common stock

Answer: d. Borrowing some money to finance operations