Consider a Firm Which Forecasts That Costs, Assets, and Current

question 332

Essay

Consider a firm which forecasts that costs, assets, and current liabilities will all change proportionately with sales and the dividend payout ratio will remain fixed. How will the firm's ROE change as a result of a forecast 30% increase in sales? How will the individual components of ROE (the Du Pont identity) change? Why?

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Definitions:

Bureaucracy

A system of government or business administration characterized by many layers of management, strict policies and rules, and a highly structured organization.

Empower

To give authority or power to individuals or groups, enabling them to take control over their lives or circumstances.

Matrix Structures

Organizational design that combines functional and project-based departmentalization, facilitating resource sharing and functional expertise.

Decentralized System

An organizational or technological system where decision-making power and control are distributed away from a central authority.